96% slump in DFM Q1 profits as Arab unrest hits trading volumes

The wider impact of the Arab uprisings on investment sentiment was underlined by a 96 per cent slump in first-quarter profits at the Dubai Financial Market to just $594,000, with average daily trading volumes down from 235 million a year ago to 116 million.

There are calls from senior exchange and regulatory officials for a merger with the Abu Dubai Securities Exchange but this remains a political issue rather than one with practical obstructions.

DFM shares dive

Shares in the Dubai Financial Market, which is the only quoted exchange in the region, are down 13 per cent this year compared with 2.4 per cent for the DFM index.

Both the Dubai and Abu Dhabi bourses are hopeful of an upgrade to MSCI emerging market status in June and will make a vital switch in payments’ systems before then to qualify. But unification of the two stock markets would be a move that might capture the attention of global investors even more.

However, in the short term there are many awkward questionmarks over the profitability of regional companies this year. In the New Year nobody expected the unprecedented trail of unrest, revolution and civil war across the Arab world; and this is just not good for any regional business.

So far the long-haul airlines seem little affected, apart from Bahrain’s Gulf Air. But the low-cost airlines like flydubai, Air Arabia, and Nas are feeling the pinch, and a Kuwaiti carrier has failed.

The lack of visitors to many stands at the Arabian Travel Market last week reflected the horrible recession now afflicting most of the region’s tourism industry.

Hotels in the UAE have filled up with an influx of tourists forced to abandon their holidays elsewhere, and from businesses rapidly relocating to a safe haven, and so has Qatar to a lesser degree.

Regional double-dip recession

But the poor financial results from the DFM are a reminder that the local financial sector is also losing business. Quite apart from the dampner on regional trade, the Arab unrest has put mergers and acquisitions and IPOs on the backburner, and frightened off potential foreign investors.

On the other hand, oil revenues have been rising for Saudi Arabia, the UAE and Qatar both due to much higher prices and increased exports to compensate for losses in Libya. This is boosting cash on deposit in the local banks and taking the pressure off local interest rates.

Thus provided unrest does not spread in the GCC the UAE should pull through the year in reasonable shape, although GDP forecasts of 4.5 per cent from some quarters look a bit optimistic at this stage.