Bahrain Bourse (BHB) was the best performing market in the second quarter, gaining 5.2 per cent, followed by Oman's stock market with a 2.2 per cent gain, according to National Bank of Kuwait (NBK) research.

The Saudi market was flat in the quarter while all remaining GCC markets were off, our sister publication the Gulf Daily News quoted the study.

Analysis by NBK shows GCC equity markets experienced a correction in the second quarter following a very strong performance earlier in the year.

The S&P GCC index was off by 1.8 per cent during the quarter, reducing gains from the beginning of the year to 8 per cent.

The latest report by the bank said the much anticipated correction appeared to be triggered in part by the deteriorating situation in neighbouring Iraq.

While regional markets underperformed international counterparts in the second quarter, they continued to fare relatively better year-to-date, due to strong performance during the first five months of the year, NBK said.

As of the end of June, GCC markets' capitalisation stood at $1.06 trillion, having shed $21 billion in the quarter.

The recent political developments in Iraq have been the main factor behind the retreat of regional markets.

However, other country and stock specific factors helped fuel what has been seen as an overdue correction.

Markets in the UAE saw the sell-off begin when the central bank warned in early June of a possible bubble in the residential real estate markets in Dubai and Abu Dhabi.

In Dubai, this was exacerbated when a surprise resignation at a major blue chip company triggered further sell-off.

In Qatar, talk related to the hosting of the World Cup in 2022 encouraged the correction on the Qatar Exchange.

GCC markets had seen strong rallies in the first five months of the year, led especially by gains in the UAE and Qatar.

The decision by MSCI to upgrade the UAE and Qatar to "emerging market" status from "frontier markets", which took effect in June, gave a strong boost to regional markets. In addition to that, the outlook for the GCC economies remained favourable especially when compared to emerging markets that continued to show signs of weakness. Solid fiscal positions supported by high oil prices also promised a solid base for continued strong development spending.

Strong corporate profitability, which picked up and is expected to continue to improve, also fed into the regional rally.

Among regional markets, the Dubai Financial Market (DFM) saw the biggest correction in the quarter, declining 11.4 per cent. Even with this decline, DFM remained the best performing market in the region year-to-date.

Liquidity in the market continued to improve in the second quarter.

GCC daily traded volumes averaged $3.9 billion, up 51 per cent from the first quarter average.

Rise in volumes was particularly significant in the UAE and Qatar as fresh liquidity entered these markets in anticipation of the MSCI upgrade.

GCC markets have been quite volatile since the end of the second quarter, NBK said.

Dubai's market gained 16 per cent in the first week of July. Investors remain quite optimistic about the region despite the strong declines seen in June as the GCC continues to have a positive outlook in the medium term. – TradeArabia News Service