An Introduction To Investing In Arabian Gulf Stock Markets

Includes: EMFM, FM, FRN, GULF, MES
by: Imran Ahmed


The Gulf Cooperation Council (GCC) groups together six of the world's wealthiest nations, i.e. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.

The GCC stock markets are maturing, with UAE and Qatar having 'graduated' into the MSCI Emerging Markets category.

Investors can spice up portfolios through some exposure to GCC markets through ETFs / mutual funds.

Political news from the Gulf Arab countries region makes the headlines regularly. MENA stock markets, less so. Nonetheless investors are well advised to examine the equity markets of the six Gulf Cooperation Council (NYGCC) nations.

The GCC is an economic and political grouping of six gulf nations, i.e. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Much helped by substantial oil and gas reserves, the GCC nations are amongst the wealthiest in the world (see Table One) providing them a modicum of political stability. Truth be told, unlike many of their brethren countries in the broader Middle East region, the Arab Spring did not result in major political upheavals within the GCC. Arguably, the cold winds of the Arab Spring resulted in a mild positive for the GCC. The change in temperature acted as a catalyst for increased public sector infrastructure spending, a strategic imperative for sustainable economic growth in the region.


Saudi United
Bahrain Kuwait Oman Qatar Arabia Arab Emirates GCC
Population (millions) 1.3 2.7 3.2 2.1 27.3 5.6 42.2
GDP PPP (USD billions) 35.0 165.8 94.9 198.7 927.8 269.8 1,692.0
GDP Per Capita PPP (USD) 29,800 42,100 29,800 102,100 31,300 29,900 40,095
GDP Growth 4.4% 2.3% 5.1% 5.5% 3.6% 4.0% n/a
Inflation 3.1% 2.8% 1.6% 3.1% 3.7% 1.3% n/a
Unemployment 15.0% 3.4% 15.0% 0.3% 10.5% 2.4% n/a
Source: CIA Factbook accessed online July 25, 2014.
All data latest available; inflation and unemployment data not recent.

All six countries have functioning stock exchanges (see Table Two). Activity on these bourses ranges from the large and liquid Saudi Arabian market to the tiny and lightly traded markets of Bahrain and Oman. Subject to maximum foreign ownership caps, all countries except Saudi Arabia are open to foreign investors. Saudi Arabia too recently announced it will open its stock exchange to qualified investors during 2015. As for the United Arab Emirates (UAE) and Qatar, MSCI Indices recently elevated both countries into the Emerging Markets category from their previous categorization as Frontier Markets. Effective June 2014, MSCI Indices Emerging Markets indices include stocks from Qatar and the UAE.


Stock Market Daily Value
Capitalization Traded
(USD billions) USD (millions)
Bahrain 54.2 0.3
Kuwait 111.9 13.2
Oman 26.7 n/a
Qatar 191.7 640.2
Saudi Arabia 560.0 8,182.9
United Arab Emirates 211.4 309.7
GCC 1,155.9 9,146.3
Source: Zawya and respective stock exchange websites accessed online on July 25, 2014.
Value traded is not an average; daily value of a recent trading day as reported by Zawya and stock exchange websites

For most investors, it makes no sense to purchase individual securities listed on any of the Arab Gulf stock exchanges. Neither is it operationally inconvenient, nor the size of any reasonable position warrant the extensive research required to buy specific company stocks. Instead, most investors might consider gaining exposure to the oil rich region through readily available mutual funds or ETFs. For example, the iShares MSCI Frontier 100 ETF (NYSEARCA:FM) showed investments aggregating almost 50% in Kuwait, UAE, Oman and Qatar markets. 'Purer' GCC exposure can be obtained through the Market Vectors Gulf States ETF (NYSEARCA:MES) which aims to replicate the performance of a specific GCC index.

Ultimately, investors buy securities in search of positive returns. Most will not be too unhappy about the MSCI GCC Countries Index recent performance. The index, which captures large and mid-cap returns across the six Gulf markets, returned 30.6% for the last twelve months. Over three and five year periods, the index's annualized return was 15.0% and 13.8% respectively. To temper the downside risk, one can throw in an index dividend yield of 3.3%.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.