Saudi Arabia's bourse rose to a 68-month high in heavy trade on Sunday after Fitch upgraded the country, while other regional share markets were narrowly mixed because of a lack of catalysts. Dubai's trading volume fell to its lowest level since last August.
Credit rating agency Fitch raised Saudi Arabia's long-term foreign and local currency issuer default ratings to 'AA' from 'AA-', citing strong balance sheets and government efforts to combat unemployment and a housing shortage, as well as the country's labour market reforms.
"The upgrade adds to the popularity of the market for foreign investors, which boosts the morale of local investors," said Abdullah Alawi, assistant general manager and head of research at Aljazira Capital. Foreigners can only invest indirectly in the Saudi market through instruments such as swaps, but their interest has been rising.
Saudi Arabia's measure advanced 1.1 percent to its highest level since July 2008, while trading volume jumped to its highest in almost two years.
Sentiment was positive almost across the board; the banking index gained 1.0 percent, while the retail sector rose 2.3 percent and real estate shares jumped 2.7 percent.
Turnover in Saudi Arabia has surged in recent days, which could be partly because of an investment shift from physical real estate to equities.
The Ministry of Housing has launched massive projects for affordable housing, in an attempt to bring down real estate prices in a heavily speculative market. Alawi said the ministry was also pushing to release more land for development.
"The potential increase in supply of land is putting pressure on prices of real estate and we are seeing early signs of money fleeing from land into stocks," Alawi said.
Meanwhile, Dubai's measure retreated 0.3 percent to 4,141 points, cutting its 2014 gains to 22.9 percent.
The market soared last year and early this year but has been trading in a 200-point range for the last three weeks, prompting investors to chase short-term gains in other markets. Some analysts say prices have become overstretched in some small-caps, and a pull-back now would be healthy for the uptrend to resume.
Daily trading volume fell to its lowest level since Aug. 13, another technical indicator suggesting a temporary end to the market's uptrend.
"The volumes have dried out - there's no fresh money in the market," said Hisham Khairy, head of trading for the institutional desk at MENA Corp.
"There are more catalysts in Qatar and Egypt, and some investors have sold in the UAE (United Arab Emirates) to chase volatility there."
Abu Dhabi's measure shed 0.4 percent, also trapped in a sideways range after a strong early-year surge.
Qatar's measure added 0.3 percent, extending its gains after last week's brief tumble because of a diplomatic tiff, in which Saudi Arabia, the United Arab Emirates and Bahrain withdrew their ambassadors apparently because of Qatari support for Islamists.