The last stock market in the world to catch up with a global rally that has almost topped out? Or the start of a long recovery from seven wasted years? You can take your pick when looking at the 24 percent surge in the Dubai Financial Market since it finally bottomed in mid-January.
ArabianMoney has actually been pointing out the value in some DFM stocks for almost two years, and the patient early investor is finally getting dividends, quite literally in the sense of a resumption of dividend payments by some quoted companies, one reason for the rally.
Reasons to be cheerful?
Otherwise it is hard to fathom why DFM investors are suddenly so much happier. Yes oil prices are high again but then only because of the threat of a military showdown with Iran which occupies UAE islands just 50 miles offshore. If push came to shove in the Strait of Hormuz shipping insurance costs would surge and be bad for trade, and the booming tourism sector would suffer. Those tourists coming to Dubai this year because of the Arab Spring elsewhere would find another destination to go to.
That said as ArabianMoney has been repeating for a long time now UAE equities are cheap by any international yardstick. The economy has also come a long way from the real estate crash during the global financial crisis of 2008-9. Cheaper real estate is now an asset for the recovery and the debts are reckoned to be under control. The Arab Spring has benefited the UAE, and not just with higher oil prices.
There has been an influx of money and people seeking a safe haven. Syria saw a third of its bank deposits withdrawn last year, around AED8 million, how much of that cash found its way to Dubai? Similarly the hotels are full, room rates up and restaurants full. It is not the recession-hit Europeans who are responsible.
Business-friendly
Dubai and to a lesser extent Abu Dhabi can justly claim that the UAE is reaping its reward for being an open and business-friendly economy in a troubled region. This dynamic recovery was not reflected in share prices was getting something of an anomaly. Will it last?
Trading volumes in Dubai are up but still only seven percent of the volumes reached in November 2007, a previous rally that went nowhere. The index was up 2.7 percent yesterday bringing the rally since January 16th to 1,676 points. Abu Dhabi Securities Exchange is only up by seven percent in the same time to 2,571 points and that might suggest that the Dubai bourse has gotten a little carried away with its own enthusiasm.
Last year a half of local brokerages shut their doors including HSBC and Shuaa Capital. Cynical market observers say the big boys always get it wrong and enter markets late and then quit just before things pick up. It may not be any different this time. The next issue of the ArabianMoney investment newsletter will present our top stock picks for the UAE.
