Long hot summer for UAE stock markets

Posted on 07 June 2010 with 1 comment from readers

UAE stock markets began the week with another fall to lows not seen since the depths of the crisis in March 2009. The Dubai Financial Market shed 1.8 per cent to 1,513 and the Abu Dhabi Securities Exchange dropped by 1.3 per cent to 2,538.

There is a lack of volume in the market, hardly any liquidity and great uncertainty. The long hot summer is also ahead with Ramadan in September putting back any realistic hope of a market revival until the end of September. Everybody should have sold in May and gone away, and many did.

Sorry loyal readers

ArabianMoney apologizes to readers who think us too gloomy these days. But we refuse to take any of the blame for what is happening. Sadly commentators do not make the news, we can only report and analyse it to the best of our experience.

You might have noticed upbeat comment in some local newspapers looks frankly ridiculous. That is because those who overhype the odd piece of good news appear foolish the next day when more bad news comes out.

ArabianMoney could publish an upbeat assessment of the local market. Indeed, our newsletter reckons UAE stocks will soon be the ‘Trade of the Decade’ and a wonderful buy. But that will be when things are bleakest and nobody will believe us.

However, the immediate outlook for UAE equities is very black. The uncertainty is local and global. Locally there is still no sign off on the $23.5 billion Dubai World debt rescheduling. Nobody in the financial world is terribly impressed by agreements in principle which can be torn up.

It is the same story for the Amlak Finance and Tamweel merger of the the two largest home loan providers. This is now promised ‘within weeks’ but in the Middle East that might mean after the summer.

Global downer

From a global perspective equity markets seem to be heading much lower after the worst May in living memory. The European sovereign debt crisis and falling euro do not seem to be problems likely to go away anytime soon; a $1 trillion rescue package reversed the stock market fall for three days only, another attempt will be questioned on value-for-money grounds.

The much trumpeted US recovery is also on its last legs. The US money supply is contracting at a rate not seen since the Great Depression and the true rate of unemployment is also climbing back to the levels of the 1930s.

Of course it does not feel nearly as bad today because standards of living are so much higher. But nonetheless low or no growth is very bad news with the US debt situation far worse than anything encountered in the 30s. China is overheating and faces a property crash like Dubai’s 20 months ago.

But ArabianMoney still thinks sooner rather than later it will be time to buy UAE stocks, and that they will be the biggest investment bargain of the decade. The DFM is already down 82 per cent from its high in 2006 but strangely the city of Dubai is actually very much still in business.

At some point that is a major buying opportunity! Subscribe to our monthly investment newsletter to get the inside story.