How low can UAE stocks go as uncertainty rules?
Posted on 09 December 2009 with no comments from readers
It would be a bold and rather foolish investor who rushed in to invest in UAE stocks this week. For one thing the circuit-breaker of a 10 per cent fall on the day is being regularly triggered in key stocks, so it is impossible to know the true daily price fall.
Yesterday the Dubai Financial Market index fell by 6.1 per cent, while neighboring Abu Dhabi was also dragged 3.1 per cent lower. Pretty much all the gains for 2009 have now been wiped out since the Dubai debt story broke.
Uncertainty rules
Analyst reports have served to heighten the uncertainty about the outlook but can hardly be blamed if they are now exposing the true position.
Morgan Stanley said the total value of debt held by Dubai Government-related entities subject to restructuring could almost double to $46.7 billion. Meanwhile, UBS added that Dubai state-owned companies may have to find the equivalent of 43 per cent of GDP to repay debts over the next two years.
At the same time the Dubai finance chief indicated that the Nakheel and Limitless restructuring might take longer than six months. Such uncertainty and the potential for nasty surprises is exactly what stock markets dislike most, and they tend to over correct to the downside.
The other 500-pound gorilla in the tent is the possibility, arguably now a probability, of a global stock market correction. This would naturally amplify what is already a very bad outlook for UAE stocks.
Outlook bleak
But for those looking for a low point then two things need to happen: first, the scale and rescheduling of Dubai’s debts needs to be agreed; and secondly, global stock markets need to correct to a level commensurate with the poor economic outlook.
At that stage it will be a matter of deciding between the two emirates and individual stocks. Abu Dhabi might still be seen as the safer bet and as having suffered unduly because of its association with Dubai. It might then be a chance to buy the best stocks at great discounts.
But if this is now stage six of the emerging market cycle in the UAE then there will be no rush to buy as investors will be sick of the stock market.
no Comments posted by readers:
Bottom should be around 1000 on the Index or about 1 Dhm. for Emaar shares and 1 Dhm. for DFM shares. They were pretty low before this default was announced so I see no reason why they won’t retest these lows again.