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Will the Dubai Financial Market stay permanently depressed as Dubai Bank vanishes?

Posted on 11 October 2011 with 3 comments from readers

It’s not been a good few weeks or months for the Dubai Financial Market. Stocks have been testing seven-year lows again. Only today the leading retail bank Emirates NBD was forced to takeover the failed Dubai Bank and the quoted Amlak Finance is expected to be next.

The head of equities for the UAE’s largest investment bank Shuaa Capital, Walid Shihabi resigned this week. Brokerages continue to close and DFM trading volumes are very low. The index graph is back to the lows of March 2009:

So much for the the Arab Spring liquidity and the improved outlook for the market discussed recently by the much admired Shehab Gargash, founder of Daman Securities (click here). Such liquidity seems to be pumping up the value of villas in The Meadows and not much else (click here).

The hyperinflation of Meadows villas is very localized, though it is now 30-40 per cent this year. Other villa communities have not seen prices jump, though they have stopped falling. To be fair the global financial crisis and Dubai real estate crash left Meadows villas very cheap by global standards for a city like Dubai, and so the impact of a wave of new buyers has been quite dramatic.

But Mr Gargash’s point that this liquidity will eventually reach local stocks is still valid. You can be wrong in the short term only to be proven right very soon afterwards.

In John Maudlin’s excellent new book ‘Endgame’ (click here) the final chapter has the emerging markets as the main beneficiaries of the bank bailouts and money printing of the advanced economies. He sees low-cost capital pouring into nations that can deliver high returns.

High rental returns

To be frank, eight per cent on a Dubai apartment rental looks attractive to many investors in these tough times. But the low valuations and very reasonable dividends available for UAE stocks ought also to attract investors attention soon, though maybe not until after we have seen some kind of a blow-up in Europe.

Will we then see a rush into UAE equities? It is perfectly possible provided that the local recovery of trade, transportation, logistics, tourism and even real estate continues. And how likely is that in a global recession? That is why the DFM remains so low.

But let us remember all stock markets are cyclical and never, ever stay permanently depressed. In 2009 Mr Shihabi took a year off and then returned to Shuaa Capital. Perhaps he will do the same thing again now. Just sitting there waiting for a recovery must be intolerable especially if you are in charge.

Posted on 11 October 2011 Categories: GCC Economics, GCC Real Estate, GCC Stock Markets

3 Comments posted by readers:

Comment by @rupertbu - 11 October 2011

Whilst so little is happening, surely now is the time for a complete merger of all UAE bourses?

NasdaqDubai has been an expensive failure, DFM remains recognised market of Dubai and may act as a catalyst merged with ADX to increase volumes, which may lead to confidence, ultimately taking UAE Market towards the up part of the cycle

Comment by @rupertbu - 11 October 2011

Just pulled off my RSS, so it would seem Borse Dubai has no appetite for local mergers, but prepared to advise globally!

Comment by Jag - 13 October 2011

The Gulf stock markets taking off ? NAAAH

The number of actively traded companies can be counted on ones fingers.

Financial reporting and regulatory disclosure standards are more primitive than the dark ages

The size of the economy and the stock market is too small to be significant

Basically no one is interested in the UAE market except a few tired old local investors.

Mark my words…..This is going to stay a frontier market for the next 5 years at least!!!

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