When will it be time to buy emerging markets like the UAE?

Over the summer this website made a fairly cogent argument for buying UAE equities, vis-a-vis political stability, oil wealth, depressed valuations and a high economic growth outlook. But timing such purchases is always tricky.

Our enthusiasm in late July, with editor Peter Cooper presenting this idea to the Agora Financial annual investment conference in Vancouver, was quickly subsumed by the sudden slide in global financial markets in August. Marc Faber understandably dropped our article on this subject from his September newsletter.

Catch a falling knife?

You don’t buy anything if the price is falling, and UAE equities fell along with everything else in global stocks in August. Therin lies the answer to the question of when to buy: just wait for markets to stabilize at a bottom first.

It could be that the sell-off is largely done and a $300 billion infrastructure investment plan from President Obama on Thursday will rally markets. Then again that will do nothing to ameliorate the mounting storm in Europe where the sovereign debt crisis looks like a nuclear reactor about to go critical and meltdown.

So our best guess would be a big capitulation sell-off in global financial markets like we saw in late 2008, perhaps with a year-end rally and then another collapse to new lows as in March 2009.

That would mean the best time to buy UAE stocks would be at one of the lowest points of this coming crisis. As we argued strongly in July these are just the stocks to buy, not the developed world with its long period of coming sub-par growth and recession.

Emerging market story

The rationale is simple enough: emerging markets like the UAE always get walloped hard in equity crashes but the underlying economy has far greater growth potential than so-called advanced nations and therefore the ability to create more value for shareholders.

You are therefore onto a winner if you can buy these stocks cheaply and hold them long enough to benefit from higher oil prices, superior business economics and the business hub status of the UAE.

However, unless very particular bargain opportunities emerge of the type we look for in the ArabianMoney newsletter for our subscribers, then this is a time to stand back and stay largely in cash until markets hit the bottom.

On the other hand, it is far more important to buy UAE stocks around these levels than to get the bottom exactly right which will always be impossible anyhow. What difference does it make if you pay AED2.8 or AED2.2 for Emaar Properties like in 2002 if within a few years it returns to its 2005 peak of AED31?