Marc Faber says UAE market only in a bottoming phase

Celebrated analyst Dr Marc Faber told ArabianMoney he thought that the UAE stock market is ‘probably in a bottoming phase’ rather than at the start of a major rally as some market participants clearly hope.

The 2.4 per cent rise in the Dubai Financial Market on the first day of trading after Ramadan was fairly subdued considering that the Dubai $23.5 billion debt deal had been finally announced at the weekend. Trading volumes doubled, but then they have been very low. Abu Dhabi stocks also gained but by even less than Dubai.

Phase Zero

In Dr Faber’s investment classic ‘Tomorrow’s Gold’ he gives a very clear exposition of the business cycles of emerging markets like the UAE. Presently the UAE appears to be in Phase Zero, or the post-crash stage. Dr Faber lists the symptoms to look for and among them is a total lack of interest at investment conferences in the country concerned.

And indeed when he visited Abu Dhabi last month (see this article) not a person in the audience asked a question about UAE stocks. However, what is needed to move an emerging economy into Phase One, or the start of a fresh upcycle, is a catalyst.

The UAE is presently without the catalyst to move its economy into Phase One. Re-organizing debts, worthy and useful as it may be, is not enough. Something has to happen to materially improve business conditions.

Dr Faber lists a whole host of possibilities from market reforms to foreign ownership and lower interest rates. But for the UAE the standard catalyst for higher levels of growth is a higher oil price. This was certainly a prime cause of the 2003-8 boom. Oil prices rose seven-fold before the crash.

Oil prices falling

Right now oil prices seem to be falling back again. Economic activity across the world is slowing down as the stimulus packages of 18 months ago run out and, whether this is a double dip recession or not matters little, demand for oil is down.

Perhaps then Dr Marc Faber is right that the UAE stock market is still only in ‘a bottoming phase’. That said ArabianMoney thinks that stocks are unlikely to go much lower than in August, although this is still consistent with the market bouncing along the bottom for a while before breaking out when a catalyst emerges like a higher oil price.

Further stock market advances on Wall Street could also take local equities to a higher level but then again a US correction would be just the thing to send UAE stocks back to their August base. The September ArabianMoney investment newsletter is out now with a list of the best buys among the UAE banks (click here).