Analysts revealed that a liquidity flight from the UAE may occur in the near future as the result of attractive incentives in other Gulf stock markets, the result of which could be slower growth for the county and market corrections like that in December.
High oil prices and subsequent capital inflows have fueled the UAE stock market over the past two year. Analysts, however, feel that such a trend may not necessarily be sustained, and that investors will most likely seek even higher returns in other markets such as Oman, Qatar, Kuwait and Bahrain.
Shehab Gargash, Managing Director of Daman, stressed this fact, saying, “The Gulf liquidity has always been migratory in nature. The UAE market benefited hugely from the regional liquidity last year," he said, according to Khaleej Times.
"We are cautiously optimistic about the UAE stocks this year because there are other markets that could compete with the UAE for liquidity,” Gargash added.
Market corrections, more volatility and lackluster trading on the Dubai Financial Market and the Abu Dhabi Securities Market indicated that a liquidity flight had already begun. Dubai based stock market analyst P. Krishnamurthy, said that “There has been a major liquidity flight from the UAE market towards the end of last year as a large number of Saudi investors cashed their holdings here to invest in Saudi Arabia and other regional markets.”
Independent estimates of Saudi investments in the UAE during the first eight months of last year stand at some Dh30 billion, while Dh25 billion was subsequently withdrawn during the last four months of the year.