'In regional terms the Qatari market is already the most expensive and this naturally reduces the probability of any further surge,' says Walid Shihabi, head of research at Dubai-based Shuaa Capital. 'Investors have been content to pay a premium to get exposure to the huge liquidity and the excellent macro-economic story.'

Certainly, the multiples do look stretched, with the market trading on an average estimated 2003 price-to-book ratio of about 4.5. Equally, with prices at an average of 22 times estimated 2003 earnings, there is less scope for a repeat of the substantial gains of recent years.

Although the market is dominated by three stocks - Industries of Qatar (IQ), Qatar Telecom (Q-Tel)and Qatar National Bank account for 29 per cent, 16 per cent and 14 per cent of total capitalisation respectively - the recent surge came across a broad front. Comparative newcomers such as Qatar Fuel Company, Qatar Leisure & Tourism Developmentand, of course, IQ itself, made strong gains last year.

'Looking ahead, I like Qatar National Cement Company, which is an excellent buy, but it is pretty illiquid and hard to get into,' says Shihabi. 'Q-Tel is still a good, robust stock by regional telecom standards, though we have to watch out for announcements on a second GSM licence. Qatar Shipping Company [Q-Ship]and Qatar National Navigation & Transportare also both good, though they are looking a little expensive at present. In the banking sector, I like Commercial Bank of Qatar, but it too is looking fairly pricey at the moment.'

One of the main events that could inject life into the DSM is the potential enactment of the proposed mutual funds law. When passed, it will allow local banks to develop investment products for the local market, and it will also give foreign investors greatly improved access to Qatari equities. At present, only Q-Tel and Salam International Investmentare open to international investors, though GCC players can buy into a handful of other stocks, such as Q-Ship and Qatar Electricity & Water Company.

'The feeling is that the mutual funds law was deliberately held back when the market was booming to allow domestic investors to enjoy the full upside,' says Shihabi. 'And that the plan now is to wait for some signs of weakness and then pass it, in the hope that the renewed interest will shore up the market. Some investors have decided to view this as an incentive to take early positions in anticipation of the law being passed.'

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