Bull trap for Gulf stock market investors?
Posted on 30 October 2011 with no comments from readers
Share volumes on the Dubai Financial Market surged to over 200 million today as traders bought into the idea that the eurozone crisis deal closed last Thursday would actually deliver meaningful results and not disappointment like previous summits.
Buying local stocks now could be a bargain with prices as low as they are going to go. Or it may be a bull trap – attracting buyers before another brutal market sell-off.
However, as the ArabianMoney investment newsletter argued this summer the DFM is over 80 per cent off its 2005 peak levels, overdue for a recovery on its seven-year cycle and does not have much room for further falls.
Bank liquidity contraction
Recent economic news in the UAE is mixed. Third quarter bank deposits at the central bank fell a thumping $16 billion sending deposit-to-loan ratios below parity but then this also doubtless reflects large loan repayments.
At the same time oil revenues are at record levels thanks to high oil prices this year and high production levels. The IMF quarterly report showed a net cash position of $220 billion, almost the exact reverse of the indebtedness of some European nations.
To be sure UAE stocks are cheap but that is not to say that they cannot become cheaper if the financial markets become quickly disillusioned with the eurozone again or the Chinese economic miracle turns sour.
The DFM closed up 2.6 per cent on Sunday, not quite the euphoria that greeted the initial news from Brussels but a relief from the long death rattle was to be expected. As we have noted before stock markets are cyclical not terminal.
