'Overall profits for the first nine months were up and companies posted good results,' says Beshr Bakheet, managing partner at Bakheet Financial Advisors. One of the strongest results for the third quarter was posted by Saudi Telecom, which announced its highest-ever quarterly profits of SR 2,400 million ($640 million), a year-on-year increase of 27 per cent. The company's profits for the first nine months reached SR 6,500 million ($1,733 million).

However, other blue chips have failed to impress investors. Despite a 133 per cent increase of profits to SR 4,755 million ($1,268 million) for the first nine months, Saudi Basic Industries Corporation (Sabic)shares dropped by 5.2 per cent, while Saudi Electricity Company (SEC)stock shed 5.2 per cent on the back of contracting interims.

'The results have disappointed a number of investors, simply because they had too high expectations,' says Eric Louis, head of investment services at Banque Saudi Fransi.

Despite the recent corrections, most analysts keep a bullish outlook for the short to medium term. 'The market had reached a level when it was 80 per cent up [on the beginning of the year] and a correction was expected,' says Mazen Hassounah, general manager at the local Rana Investment Company. 'Some stocks have appreciated based on fundamentals, but others without reason. What we are seeing now is that these stocks have gone down.'

Said al-Sheikh, chief economist at National Commercial Bank (NCB), takes a similar stance. 'The market was bound for some correction. But for the core of the market we expect gains in 2004, though they will be lower than this year, assuming that there will not be any major oil price changes.'

Two events in particular are set to provide a major boost to the local stock market, the widely-rumoured initial public offering (IPO) of NCB and the coming into force of the capital markets law (CML) in February.

Although no firm timeline has been released, banking sources say the IPO of NCB is now likely to take place in March/April, or - should the schedule turn out to be too ambitious - towards the end of the year due to the holiday season in the third quarter.

'I expect the government will not sell off less than 30-40 per cent but I hope it will be 50 per cent or more as it would be a clear signal to investors that the Saudi government does not intend to run financial services in the country,' says another local financial adviser.

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