Global Investment House - Kuwait - Bahrain Economic and Strategic Outlook 'Bahrain Stock Market' After a poor performance in the year 2006 in which most GCC markets gave negative returns, the markets rebounded and came up with spectacular returns with Bahrain being no exception. The petro-dollar liquidity combined with strong macro economic growth was reflected in the performances in capital market in the region with all markets posting above 25% return for the year 2007.

The growth in Bahrain capital market was not as astounding as in the case of its peers. When we compare Bahrain with its peers, it is placed last in its 2007 performance with Oman, Saudi Arabia and Qatar posting above 40% returns. However this is mainly due to the fact that in the previous year all these markets had lost more than 25% with the exception of Oman whereas Bahrain recorded a marginal decline of only 1.9%.

At the end of 2007, the market representative 'Global' Bahrain Index stood at 213.99 points reporting an increase of 26.5% over 169.16 points achieved in 2006. However, the growth in 'Bahrain All Share Index' which closed at end of the year at 2,755.3 points was 24.2% higher when compared with the previous year.

During the year there was only one new listing. Seef Properties got listed at Bahrain Stock Exchange with a paid up capital of BD46mn. Consequently the number of companies traded on the exchange increased to 51. The market capitalization at the end of 2007 was BD10.19bn as compared to BD7.96bn reported at the end of 2006, reporting an increase of 27.9%.

Among the sectors, investment sector continues to account for the highest market capitalization (48.9% of the total) followed by the banking sector (32.5% of the total). Among the companies, the Ahli United Bank, the largest listed bank accounted for 15.45% of the total market capitalization at the end of 2007. Other major contributors to the Bahraini market capitalization are Bahrain Telecommunication Company (11.37%), Arab Banking Corporation (10.48%), Gulf Finance House (8.98%) and Investcorp Bank (7.78%). The top five companies in terms of market capitalization accounted for 54.06% of the total market capitalization of the Bahraini market.

The aggregate volume of shares traded in 2007 was up by 17.0% to reach 851.1mn as compared to the aggregate volume of 727.6mn reported in 2006. The aggregate value of shares traded in 2007 amounted to BD403.1mn, decreasing by 22.9% over 2006.

Improved macro-economic conditions in Bahrain have benefitted and will continue to benefit the Bahraini financial sector - the largest component of the country's economy. Liquidity is high in the region which has led to rising bank deposits and greater financing opportunities. The biggest beneficiary for this would be the investment and the banking sector. This is evident by the performances of the investment and the banking sector on the exchange with the BSE investment sector reporting a massive yearly gain of 37.8% which is way ahead of the 24.2% achieved by the Bahrain Index. We expect the financial sector comprising the investment sector, commercial banks and insurance to do well in 2008 as well due to the high economic growth expected and record oil prices.

2004 2005 2006 2007

Number of listed companies 45 47 50 51

Volume of shares traded (mn) 336.5 458.3 727.6 851.1

Value of shares traded (BD mn) 174.6 268.1 522.9 403.1

Number of transactions 15,744 22,463 21,699 27,707.0

"Global" Bahrain Index 140.57 172.44 169.16 213.99

Market Capitalization (BD bn) 5.15 6.55 7.96 10.19

Shares Turnover (%) 3.38 4.03 6.54 4.94

Dividend Yield % 3.69 3.19 3.59 3.69