The key factors behind the KSE’s meteoric ascent remain: the removal of Saddam Hussein and strong liquidity fuelled by high oil prices. Fears of a bubble forming continue to worry some investors, but the robust profit growth of almost all stocks has brought some comfort.

‘The close interaction between local companies and the stock market is preventing stocks from becoming overvalued,’ says Shailesh Dash, senior financial analyst at the local Global Investment House. ‘As the market climbs, profitability climbs – because so many local firms have equity investments – and the profits are then reinvested in organic growth.’

The KSE is also deepening at a healthy rate. During the year to the end of October, 13 new companies listed, with several more in the pipeline before the end of the year.

While the change of regime in Iraq is an overwhelmingly positive factor for local market confidence, the failure of the US-led coalition to stabilise the country more swiftly has contributed to some taming of bullish sentiment. The much-touted reconstruction boom has yet to materialise. Shares in local telcos Mobile Telecoms Companyand National Mobile Telecommunications Company (Wataniya)hit record highs in October on news that they had provisionally won lucrative Iraqi mobile contracts. Their values have since fallen sharply over the delays in a formal award and the beginning of operations. MTC warned in late November that its profits forecast would be downgraded if Iraqi operations failed to begin by the end of the year.

On the other hand, certain sectors are already feeling the Iraq effect. ‘The logistics sector is one of the big success stories of recent weeks,’ says Dash. Public Warehousing Company (PWC)shares were trading at a record high in late November after the company posted nine-month profits close to triple 2002 levels.

Across the board, listed companies are exhibiting healthy growth and diversifying to spread risk. ‘Lots of firms are looking at regional expansion, which reduces exposure to any sudden downturn in the local economy,’ says Dash. ‘These moves should further insulate the stock market against a potential slump.’