The bourse broke several records during September and October. On 2 November, the price index reached 6,146 points, just below the all-time high of 6,210 points achieved on 12 October. Even interest rate hikes of 50 and 25 basis points in August and September respectively have been unable to stem the bullish mood.

The strong figures have led to predictable claims that the market is overheating, but analysts believe there is still room for ample growth. ‘Fundamentally, the market is very strong,’ says Shailesh Dash, head of research at the local Global Investment House. ‘With the forward price/earnings ratio averaging 12.5, it is far from being overvalued. By mid-2005, the index could well reach 7,000 points, although it will depend on how full-year profits turn out.’

Healthy profit growth among listed companies has been the principal catalyst for the bourse’s revival during the third quarter, with the average net growth rate close to 19 per cent for the first nine months of the year. Leading the way has been the local PWC Logistics. Buoyed by work in Iraq, where it has won contracts from the US Army, the company has seen a 385 per cent rise in its operatingprofits for the first six months of the year, compared with the same period in 2003.

The Iraq effect is also continuing to have a positive effect on the local construction sector, with Kuwait Cement Companyand Kuwait Portland Cement Companymaking the most of the current boom.

In the banking sector, stocks in Kuwait Finance House (KFH)surged in early October after the government announced it was to sell its shares in the bank in the first quarter of 2005.

The prospect of other sell-offs has whetted the market’s appetite. Planned initial public offerings next year in 80 state-owned petrol stations, Kuwait Airwaysand The Kuwait Olefins Company (TKOC) are eagerly anticipated.

‘The government is giving all the right signs, which has fuelled the optimistic environment,’ says Dash. ‘Everyone is now waiting for the corporate tax legislation [lowering the tax rate for foreign firms to 25 per cent from 55 per cent] to be passed by the National Assembly [parliament] as a further indication that things are moving in the right direction.’

Stocks to look out for include the two local telecoms operators Wataniya Telecomand MTC-Vodafone. Both are comparatively undervalued due to heavy investment in overseas start-ups, but should start showing returns by next year. Insurance companiestoo offer good value for money as they recover from a slew of claims from cement and logistics firms provoked by the construction boom.