Bad news bears see no value in value

Who would be a stock picker in the Gulf this past month? The people who are paid to understand the mysterious ways in which the regional markets work, tell us there's value to be had out there.

But the erratic and mainly downward movement in stocks through August and into September would suggest that both retail and institutional buyers of equities think otherwise.

In the month to September 10, the Dubai index retreated nearly 15 percent, while Abu Dhabi was down more than 12 percent and Doha by the same measure.

And as I write, Emaar has hit a new 41-month low. Analysts cited a combination of bad news for the latest decline.

Investors, it seems, appear increasingly reluctant to believe there are regional oases of value to be had amid the global markets meltdown.

And that's understandable given the woeful economic data emerging from central banks and government departments from Washington to Tokyo.

In the US, as Treasury secretary Henry Paulson took control of the now notorious subprime mortgage lenders, Fannie and Freddie, it emerged that consumer spending slowed again in July.

In Germany, the country's world-class automotive industry was left reeling by the news that car sales dropped 10 percent in August.

And in Britain, the economy contracted for the first time in a decade during the third quarter - fuelling fears that the country may be entering its first recession since the dark days of 1991.

At the same time, UK homeowners learned last week that house sales had hit a 30-year low with some agents reporting just one sale per week.

Those economic ripples are now reaching the Gulf.

More worrying than the statistics that appear in columns and rows, are the comments from the business leaders who don't yet see a silver lining to the economic storm clouds gathering.

In our cover story of this week's issue of Arabian Business, British Airways chief Willie Walsh believes the aviation industry has never faced worse times ahead.

"I can't remember a situation where we have high oil prices, weak economic conditions in a number of key global markets, weak consumer confidence and the impact of the credit crunch," he says.

But let's not get too down in the dumps. Merrill Lynch tells us this week that the macro picture is still rosy in the UAE at least - with its ‘huge external surpluses, favourable demographics and relatively diversified economy'.

It also welcomes recent moves by the government to cool the real estate market which has produced some of the best returns available anywhere in the world over the last year.

The fundamentals are still good according to Merrill, regardless of how the bourses have performed in recent weeks. But with a whole lot of negative news out there and with the likelihood of more to come, the bad news bears may be around for longer than we think.

Sean Cronin is the editor-in-chief of Arabian Business English.


What makes Willie weep
British Airways CEO Willie Walsh faces his toughest challenge yet in his plans for an alliance with AA.

Print | Email | Discuss this article |

READERS' COMMENTS

View all comments (2)

Have your say

Sovereign Wealth Funds may change direction of investment flows
Posted by Gergana, Dubai, UAE on Monday 15 September 2008 at 12:16 UAE time


Restrictions by the United States and others may lead sovereign wealth funds to invest closer to home instead of in the West, the head of the central bank for the United Arab Emirates was quoted as saying....According to a document in bullet-point form quoting UAE central bank governor Sultan Nasser al-Suweidi, such a scenario would trigger a “a new regional developmental cycle” in the Middle East.

“Regulations regarding SWF might lead to … fund becoming more passive investment vehicle or change direction of investment flows,” according to the document, presented at a Japanese business conference held in Dubai.

Sovereign wealth funds such as the UAE’s Abu Dhabi Investment Authority, the world’s biggest, have poured billions of dollars into ailing banks and firms in the industrialized economies in recent years.

But fears of foreign influence by the new stakeholders, whose wealth has mushroomed due to the high price of oil, has sparked an intense debate in the United States, Germany and elsewhere about curbing possible influence by the funds.....

UAE economy diversified?
Posted by Paul, Dubai, UAE on Monday 15 September 2008 at 10:54 UAE time


Oil (falling fast). Tourism (what if the UK, Europe, US and Asia are all slowing down or in recession?). Real estate (we've heard the assurances of a robust economy elsewhere right before the penny drops and the bubble pops. The UAE economy could be heading for a perfect storm. No wonder the stock markets are falling so fast. In this global age, no country is an island.

If real estate prices even stabilize, the speculators will exit the market. That takes maybe 70-80% of the buyers out. Prices will dive. Construction will stop, those working in the industry will go home, population growth will reverse, continuing world recession will drag down oil prices further, tourists from overseas just won't have the money to travel.

Cue the usual assortment of boom-mongers to tell me that the UAE is unique and immune to the laws of economics, and that the economy is sound. Sure it is. So was the US and the UK before their real estate markets hit the skids. I think the stock markets have a better idea what is going on that some jonny-come-lately wannabee Donald Trump with a couple of studio flats in the marina.

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Security Code *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM