Like surfers waiting for the next big wave, investors are eagerly surveying the distant horizon for signs of a global equity rebound. The only uncertainty is when it will come and how big it will be.
The consensus this summer is that the recovery may come later rather than sooner. The New York Stock Exchange (NYSE), still the world's bellweather bourse, has lost more than 5 per cent since the start of June after gaining ground sharply in the previous two months.

Larry Summers, director of US President Barack Obama's National Economic Council, warned in an interview with the Financial Times on 10 July that the worst was not yet over. US gross domestic product (GDP) could contract further.

He was warning the world, and his boss, to be patient. Time is still on Obama's side. The critical moment will be the mid-term elections in November 2010.

If the American majority believe things are getting better, the Democrats' chances of holding both houses of congress will be good. If they do not, control of at least one will be lost. Obama's greatest fear, that he would become the prisoner of a hostile Congress, could become a reality. A buoyant stock market would go a long way to consolidating the Democrats' position in Washington.

The US recovery programme, the most expensive reflationary package in history, is consequently essentially political. The US administration needs a Wall Street surge and it is doing everything it can, without being too crude, to make that happen.

Gulf equity markets since the summer of 2008 have reflected trends on the NYSE, but with greater amplitude. Saudi Arabia's Tadawul was down 40 per cent in the year ending 30 June. The fall on the Abu Dhabi Stock Exchange and Kuwait Stock Exchange (KSE) was almost 50 per cent. The Dubai Financial Market (DFM), the Middle East's most volatile bourse, is almost 70 per cent lower than it was a year ago.

Unchartered territory

Investors in GCC stocks have tended to track the oil price. When it goes up, they buy and they sell when it falls. But since last summer, Gulf equities have tended to follow global markets. This may explain the fall in five of the seven GCC market indices in June, a month when the oil price rose to $70 a barrel. This was more than 75 per cent above the average in December.

It seems investors in the Gulf are waiting, like everyone else, for the Obama economic package to begin. When it does, global equities will enter unchartered territory.

The US reflationary programme is essentially inflationary and must, in due course, lead to a new asset bubble. But what compounds the challenge facing those trying to save long-term by buying shares is that the new upward cycle is likely to be much more fragile and volatile than previous ones. This is because of the growing significance of intangibles in advanced economies. The future income streams and net asset valuations of service companies are even more difficult to forecast than those of tangible firms.

Investment analysis in advanced economies is becoming a form of guesswork. Sentiment in the market itself is the most important factor influencing share prices. And this is as predictable as the behaviour of a flock of sheep.

If this assessment is right, the global equity boom should be under way by this time in 2010. It is also probable that the price increases will be sharp as investors respond to a mutually-reinforcing sequence. Higher prices will increase confidence. Higher confidence will increase prices.

But the new boom may be shorter than previous ones. Volatility is likely to be higher in the years to come than it has been in the past.

Stock exchanges will continue to be no place for amateur or part-time investors. The challenge for long-term value investors, and not just in the Gulf, is finding financial markets where volatility and uncertainty are lower. This challenge is looking increasingly insurmountable this summer. It is not only unclear what those markets might be. It is also almost impossible to say with confidence whether it will ever be clear again.