Dubai: The Dubai financial market has dropped by 68 per cent since March 2009 — double the rate of decline in other GCC markets, but it has improved since last September, a finance expert speaking at a seminar on market challenges said yesterday in Sharjah.
Investors lost Dh500 billion on the financial markets between June 2008 and last month, with small investors suffering the most, said Ziad Al Dabbas, adviser at the Domestic Capital Markets Group in the National Bank of Abu Dhabi (NBAD).
Small shareholders
Several factors led to the decline, including "illogical" speculation and banks' participation in it, poor investor awareness, the collapse of the real estate market and expatriates looking for a quick turn-over rather than long-term investments, Al Dabbas said at the event organised by the Sharjah Chamber of Commerce and Industry (SCCI). A lack of transparency by companies continued to be a problem, he added. Another issue was companies going public as soon as they were set up, without having a track record of trading or solid reputations.
"Even the owners sell their shares. The companies become orphans, owned by small shareholders," he noted.
Al Dabbas said trading on the financial market reached Dh900 billion in June 2008, when GDP was only Dh500 billion.
"People unfortunately thought that the market would only yield profit, and not loss, so unfortunately they lost large fortunes," he said, adding that it was mostly made up of individual investors.
"The real economy then was nothing. They thought the financial market was the whole catch."
Last month trading dropped to Dh400 billion. "Everyone felt the cruel-ty of this drop," said Al Dabbas, referring to the government, individual investors, banks and other financial establishments.
Far from crisis
But he recalled that in September 2008, when the financial crisis hit on a global scale, foreign investors had been better informed about the economic situation and began to sell their shares in the UAE.
"We wondered why they were selling because here we were told that we were far away from the crisis and that [it wasn't happening]," said Al Dabbas.
Demonstrating the extent of the crisis, he compared the 68 per cent drop in Dubai's financial market with the two per cent drop in the Dow Jones index in the US, where the crisis originated, in the same period.
Worst is over
The Abu Dhabi financial market fell 43 per cent and the Egyptian financial market 30 per cent, he said. Company profits fell from Dh33 billion to Dh17 billion from June 2008 until last month, he added.
"It was leverage, optimism and a lack of fear that led to the excesses," said Ayman Al Samawy of NBAD. However, he added that the "worst is behind us" as capital inflows are surging again into emerging markets.
Recovery and future growth
The UAE market now "fears expectations" and this puts it in a better position than the boom of 2008, as market corrections and logical investments take place, said Al Dabbas.
In September, signs of improvement were already apparent compared to August.
The Dubai financial market rose by 18 per cent and Abu Dhabi by nine per cent, he added, attributing the optimism to the bonds issued by the Dubai government and Emaar and Dubai's debt restructuring plans.
"It is still weak compared to 2009, but still better than last month," he noted.
Looking ahead, he said that, in order for economic recovery to happen, incentives need to be given to banks to encourage them to lend again. "Banks see the dangers of lending so they're cautious. When they lend again it is an indicator that the risks are going down," he said. "They are not lending now, they need more time...."
And he pointed out that at the moment there are good investment opportunities in food, the telecoms industry, clothing and medicine.
Despite currency fluctuations, the UAE should remain pegged to the dollar because the fluctuations are temporary and the UAE's reserves are in dollars, added Al Dabbas.
Banks, too, should play a more pro-active role in informing investors of their products and attracting investment opportunities to the UAE, said Hussain Al Mahmoodi, Director-General of SCCI.