TCS Daily

Arab Wall Street Rides the Bull

By Jerry Bowyer - February 3, 2005 12:00 AM

ChartWell has long argued that capital markets are a great place to look for insight into the prospects for a future democratic and capitalist Middle East. When people in closed societies answer questions from pollsters, the value of those answers is pretty low. When Western pundits answer those questions the value is even lower, but when the people of the region register their opinion in the way that counts most for them -- with their life savings -- we're probably getting the most reliable information we can. Judged by that standard, the people of Jordan, Israel, Turkey and Egypt seem to agree more with President Bush's "idealistic" view of the world than with Ted Kennedy or even Peggy Noonan.

Regional Bourses have generally been pretty favorable during the entire Iraq campaign. When it went well, they rallied. When it foundered, so did they. When they de-loused Saddam Hussein on international television, the markets spiked (as we showed in a previous ChartWell installment).


Still, when John Kerry said Sunday morning that we must not "overhype this election" he was talking to the wrong people. He should've been talking to Egyptian stock brokers, who don't seem to have gotten the message that the Iraqi election is no big deal.


In the past week, Turkeys ISE National 100 index has risen by 5.2%, Jordans main index has increased by 3.6%, Egypts CASE 30 has increased by 11.9%, and Israels Tel Aviv 100 index has shown a slight up tick of .14%. On the other hand, the Kuwait Stock Exchange Index has shown a drop of about .7%.



All of this should come as no surprise; it's simply an intensification of the pattern we've already seen -- the people on the scene are betting on a coalition victory and an Iraqi democracy. This held throughout 2004. According to research from Glenn Yago at the Milken Institute,


"Regionally, stock markets rose over 30% in 2004 and represent a market capitalization of $470 billion. This has been accompanied by a surge in regional property values and a higher number of tourists. The main Egyptian equity index has increased 165%, while that of Saudi Arabia has gone up by 158%. The Saudi market's stellar performance is especially striking given the great amount of attention paid at the moment to that country's security problems. Israel's leading index has risen by 32%, the benchmark index of Kuwait's exchange by 73%, Jordan's by almost 60%, and that of the United Arab Emirates by 110%."


And, by the way, this is not "all about oil" either. In fact, oil rich Kuwait actually sold off on the news of a successful election in Iraq. Perhaps investors have wisely surmised that an Iraq which tilts in America's direction is the death knell for corrupt oil kleptocracies that up until now were the only people with whom the world could do business.


Of course the Kuwait sell-off may reflect the fact that if things really do calm down in Iraq, oil prices will drop. That's bad news for them and the Saudis.


Jerry Bowyer writes the ChartWell column for TCS.


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