10% fall in NBAD Q1 profits sounds a less bullish note for UAE stocks

UAE stock markets have enjoyed a brief rally of more than 20 per cent since the worst point of the regional unrest last month when Saudi protests were threatened that did not materialize. This relief rally is likely to fade as investors take profits and sell before May and go away.

The National Bank of Abu Dhabi brought investors down to earth with a bump yesterday, posting a 10 per cent fall in first quarter profits, down to $252 million due to write-downs against non-performing loans.

Oil windfall

However, analysts say both NBAD and the NBD Emirates are going to reap the benefit of higher spending in the wake of higher oil prices. The UAE is presently pumping more oil than ever at above $120 a barrel, and making up to a third of a billion dollars a week in windfall revenues.

Saudi Arabia has caught the headlines with its big plans for higher public expenditure, the carrot to assuage any potential unrest. But the UAE has also committed $1.6 billion to the poorest Northern Emirates. Abu Dhabi sovereign wealth fund Mubadala is planning capital investment of about $16.4 billion next year, four times the level of the past three years.

The money is certanily piling up. NBAD reported a 14.6 per cent rise in deposits to $38.3 billion. This sort of liquidity bodes well for future lending and local interest rates are coming down, another bullish trend.

But the prospect of a global stock sell-off and possible double-dip global recession is the sword of damocles that hangs over the UAE stock market, and threatens a swift return to the lows of last month. UAE stocks generally follow the global markets and it is unlikely to be any different this time.

Next shock?

Global stock markets face so many headwinds that a gale could flare up at any moment. The World Bank chief said the world was only one shock away from another crisis late last week.

High oil prices may already be enough to bring financial markets tumbling down as $147 oil did in 2008. Oil fell to $33 a barrel by December that year, and UAE stock markets crashed alongside it.

Those UAE stock market investors deciding to sell before May and go away may have got it right this year. Then the ArabianMoney newsletter will be looking hard for the right stock picks (sign-up here).