'Since the end of summer we are beginning to see the BSE catching up with the rest of the gang,' says Mohammed Adnan Afzal, equities analyst at the local Securities & Investments Company (SICO). 'It is not unusual for Bahrain to lag behind the region's major markets as it is often only once the initial allure of the big hitters begins to fade that investors turn to the smaller markets.'

With Kuwait and Saudi Arabia now coming down from their highs, the time is ripe for Bahrain to reap the continued interest in Gulf stocks. 'The heavy volume of trade on other markets means that valuations for local listed firms are cheap and investors are now looking to capitalise on this,' says Afzal. The movement to Manama is evident in trading volumes on the BSE. While the turnover averaged only BD 6.7 million ($17.7 million) in the first seven months of 2003, a surge of activity doubled turnover to BD 12.9 million ($34.2 million) in August.

Investor interest has initially been focused on Bahrain's blue chips, with commercial banking stocks and shares in Bahrain Telecommunications Company (Batelco) securing the bulk of trading activity in October. 'The positive second and third-quarter results are an encouraging indication of things to come,' says Afzal. 'Despite growing interest, the valuations are still cheap and there is no downside risk in the stocks for the foreseeable future.'

But it is not only the market giants that are attracting the eye of the region's investors. Funds are also being channelled towards some of the smaller stocks that usually wouldn't warrant a look-in. 'With 4 April 2004 set as the date for the kingdom's hosting of the Formula 1 championships, there is going to be a lot of money flowing into Bahrain in the coming months,' says Afzal. 'It is going to provide an important growth opportunity for a lot of local companies and as a result we are seeing interest picking up in the smaller hotel and tourism stocks.'

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