Dubai stocks crash back to the bottom again
Posted on 21 December 2008 with no comments from readers
Dubai stocks plunged 5.5 per cent today back down to the previous low of 1,800 amid worries about declining oil prices, a local house price crash and continued poor liquidity in the banking sector.
This is almost a perfect storm with the Dubai Financial Market down by more than 70 per cent this year, making it among the worst performing stock markets in the world. It is almost enough to tempt you to buy!
Oil prices crash
However, local companies are only just beginning to feel the downturn which came late to the Gulf States. Until July oil prices were strong but have collapsed from $147 to $33.
At the same time the recovery of the US dollar has made Dubai tourism expensive for travelers from Europe and the UK, leaving many local hotels with occupancy levels not much above 25-30 per cent; tourists from these places are also suffering from the credit crunch at home.
In addition, there has been a severe liquidity squeeze this autumn. UAE nationals and some foreign investors have pulled vast amounts of money out of stocks and bank accounts. Banks made high lending commitments in the first half so are now charging high loan rates and paying high rates to savers.
The dollar peg appears meaningless when local savers can get 6.6 per cent on a six-month dirham deposit with UK-state-owned RBS, and local mortgage holders pay twice the US dollar 30-year average rate.
With mortgage finance expensive and lending terms tough, local house prices are falling hard. Last week apartments sold for an average of $209,000 and villas $1.36 million which is a substantial reduction on prices achieved in the summer.
Perfect storm
Small wonder the DFM continues to ratchet down in this perfect storm of adverse economic conditions. Local businesses which can not apply to Abu Dhabi Government for refinance face an appalling combination of spiraling costs and collapsing revenues.
This has happened very fast this autumn, and the only hope is that the rebound on the upside might be equally quick. It is possible that the oil price might recover on tight supply and the dollar could devalue again, but then again this might take some time.
In the meantime, companies are shedding staff rapidly with thousands going in construction and real estate, and this downsizing is moving into the service sector. Beyond a certain point this becomes a downward spiral and will deflate the economy further.
Some bargain hunters have been noted in the local stock markets but the recovery could take longer than these speculators hope. For those with deep pockets this could be the right time to buy.
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no Comments posted by readers:
I expect the stock markets in the UAE to pretty much crash in the near term and following that I expect a Real Estate crash in the UAE that will pretty much make headlines for 2009. After that has taken place I see a recovery and good profits to be made. I will be buying oil in the low $20’s. When oil goes under $30 and then hits $25 expect the Shi* to hit the fans in Dubai as stocks crash and real estate prices start tumbling. We will also see a lot of people getting laid off work as companies cut back on expenses.
Thank God you didn’t use this image from this link. They have made that depressed man into a star as they use his picture every time the local stock market crashes. They have been using that picture now for ages in just about every article they publish. Talk about some lazy editors over at ArabianBusiness.Com
http://www.arabianbusiness.com/542063-thin-volumes-expected-as-foreign-investors-take-holiday