Finance is the only sector still really depressed in the UAE

Coming up towards the end of 2011 and the UAE can point to a year of substantial recovery thanks to record oil revenues and safe haven status in the Arab Spring. Its $340 billion GDP, the second largest in the Arab world is up more than three per cent.

Only the local financial sector is still locked in depression with even media picking up a bit. Contractors are much busier in Dubai, though less so in Abu Dhabi. Real estate agents can’t find enough villas to sell in Dubai.

The announcement at the end of the last week that the UAE bourses will again not be joining the MSCI emerging markets index seemed indicative of a bad year for finance ending on a bad note. So the fifth richest per capita nation remains with its stock market classified as a frontier market alongside Bangladesh and Laos.

Too gloomy?

Or will the local stock market be proven right after all and the recovery of the past year prove to be an illusion and the UAE return to the depression that followed the real estate collapse three years ago?

ArabianMoney is as worried about the euro-geddon extreme scenario of the eurozone financial crisis as anybody else. But we still don’t think this will come as such a big blow to the UAE as the global financial crisis of 2008-9.

Why? Well this time the crisis will be mainly global and not local. There will not be another real estate crash and day of reckoning for banks, contractors and developers. Sure things could slowdown or reverse for a while but that is not the same thing.

Besides the UAE has plenty of cash in the bank from a great year for oil revenues, the best in the history of the federation and the Arab Spring continues to bring new tourists and residents to the country.

If you are asking who will fill up the presently 38,000 empty rental units and 22,000 homes for sale then there is still a healthy in-flow of people into the nation. A tidal wave of new hotels also managed to fill up in 2011 and show high occupancy rates.

85% discount

However, the financial sector remains depressed with the Dubai Financial Market approaching 85 per cent off its 2006 peak. You could make a very good case for buying stocks now, if it was not for the gloomy global economic outlook that threatens to keep them cheap for a long time.

How about the financial stocks themselves? Do the banks face a second wave of bad loans and possible defaults? They already have big provisions in place for these, will they be too little or too much? Will we see any more sudden bank consolidations like Dubai Bank?

Perhaps we just have to wait-and-see. That is what local stock market investors have decided to do. It is prudent enough but at some point everybody will decide to pile back into shares again and the best bargains will be gone.