Is it too early to buy in Dubai?
Posted on 01 June 2009 with no comments from readers
The Dubai Financial Market jumped 4.8 per cent yesterday, its sixth day of gains, while Sovereign Wealth Funds are said to be eyeing up local real estate and HSBC has a buy note out on Emaar Properties.
Is it therefore time to buy in Dubai? Is the hot summer the point to steal an advantage over rivals who will not be back from their holidays until after Ramadan? It is at least fair to ask this question now, and not a joke as it would have been since last September when the local economy went into a nose dive.
Oil price vulnerability
One Dubai stock market sage commented that the banana-skin waiting to trip this tentative rally up was the oil price. And it is true that the 85 per cent recovery in the oil price from its low last December represents the main factor supporting renewed confidence and higher share prices.
Is $66 oil a passing phase of volatile markets, like the $147 peak only last July? Or is this a part of a durable rally in global commodities linked to a global economic recovery?
If you are an optimist who thinks the world can very quickly recover from the biggest recession since the Second World War then you might indeed conclude that oil prices will stay up, and that therefore you ought to be getting on with any plans you might have to buy in Dubai.
Buyer beware
However, the HSBC note on Emaar also cautions against other potential risks to what it sees as some evidence of a bottoming out in the Dubai real estate market, although much the same cautionary factors could also be applied to the local stock market:
‘1). With the summer approaching volumes are likely to soften leading to short-term price volatility. 2). The school year coming to an end in June, and more supply coming on the market could lead to renewed (real estate) price weakness. 3). A further downturn in the global economic environment is likely to have an adverse effect on the market.’
HSBC first put out a buy note on Emaar in February 2001 which pointed to strong upside potential in the stock, but it was still another four years until the share price moved up significantly. Buyers today will be hoping it will be different this time.
