Manama's bulls goaded into action

24 September 2004
The Bahrain Stock Exchange (BSE), the smallest in the Gulf, outperformed its rivals in August. The benchmark BSE index advanced 9.1 per cent - 2004's highest monthly average - to reach an all-time high of 1,672.4 points. And while the bull run has corrected a degree of undervaluation, stocks still look reasonably priced by regional standards.

Anyone attempting to phone Bahrain during August would be forgiven for thinking that residents had decamped en masse to cooler climes. However, it appears that many had in fact headed to the local bourse. Trading volumes jumped by more than 25 per cent over July's levels and the market has continued at a brisk trot into September, with the index up by more than 4 per cent since the start of the month. 'There was no specific trigger, but the high liquidity fuelling equities across the region, coupled with a lack of paper to distract local investors and a realisation that Bahraini stocks had become undervalued, drove the rally,' says Jafar Khan, analyst at the local Securities & Investment Commission (Sico).

Commercial bank stocks dominated August trading, accounting for some 70 per cent of market activity. Leading the way was Ahli United Bank (AUB), accounting for about 45 per cent of volume and 22 per cent of value traded, and rising in price by some 20 per cent. The buyers' embrace appeared to be a somewhat belated reaction to AUB's regional advances. 'The news that AUB received final approval to take the 40 per cent stake in Ahli Bank of Qatar raised investor confidence,' says Khan. AUB has also recently formed a joint venture to act as a springboard into Iran and is rumoured to be negotiating to acquire a stake in Sharjah-based United Arab Bank.

Outside the banking sector, Bahrain Telecommunications Company (Batelco)stock was also heavily traded. The stock price has been rising over the past month and a half, as investors identified a bargain. 'Batelco stock had been very undervalued, partly due to fears about the liberalisation of the local telecoms market,' says Khan. 'Then investors realised that these fears were exaggerated, especially after the good first-half results.'

The hotels and tourism sector was another strong gainer in August, in spite of the fact that the kingdom's most high-profile tourist developments are currently construction sites. Shares in Bahrain Hotels Company, operator of Gulf Hotel and undertaking expansion both at home and abroad, appreciated by 12.7 per cent. Investors would appear to be confident that the government's efforts to develop Bahrain as a high-end tourist destination will bear fruit. The sector's stock has become the most expensive in the market, trading out at about 24 times earnings.

Local analysts now tip some of the smaller caps to make gains. ' Bahrain Commercial Facilities Company and Bahrain Maritime & Mercantile International are stocks to watch, as both are successfully expanding their activities,' says one. ' Batelco I would be wary of in the short term because the low valuation has overcorrected.' It may be a niche hobby, but there are profitable pickings to be made on the BSE.

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