Rollercoaster ride predicted to continue in Gulf

VOLATILE TIMES: The instability across Gulf markets appears likely to continue for two months. (Getty Images)

The instability across Gulf markets could continue for the next two months, market watchers warned on Tuesday.

UAE markets have been on a roller-coaster ride this week, as nervous foreign investors liquidated positions after major US investment bank Lehman Brothers filed for bankruptcy protection and Merrill Lynch was acquired by Bank of America.

Robert Mckinnon, head of research at Dubai’s Al Mal Capital, told Arabian Business international investors are unlikely to return to the region in the near term.

“We haven’t seen any international investors come back. They have bigger issues; general liquidity is drying up across the globe. Yesterday we saw a lot of local buyers coming into the market instead - these are clients who aren’t really affected by the conditions in global markets.”

Mckinnon expects market volatility will calm down over the next two months, but may not make a full recovery for up to one year.

“It’s not going to calm down over the next two weeks - I don’t expect to see a v-shaped recovery globally. It could be six months to a year before we see markets re-adjust, stabilize and move forward.

He described the sell-off on Monday as a “knee-jerk reaction” to the bad news from the US.

“Volatility is never a good thing and I don’t think we are out of the woods yet.”

A drop in oil prices is also affecting gulf markets, despite the current value still being more than high enough to stimulate the regional economy, he added

Mckinnon said despite the market being shaken by foreign investors liquidating their positions, he hoped restrictions on foreign ownership would not be increased.

Many regional companies had increased their foreign ownership thresholds in 2007, in a bid to improve liquidity.

“Actually I would hope foreign ownership restrictions would move in the other direction. Caps on foreign investors can actually be frustrating, since it encourages people to take their money out and invest in other markets. An adjustment of foreign ownership limits would be very short-sighted.”

Marios Maratheftis, head of research at Standard Chartered said the volatility currently being experienced in the Gulf could not be blamed on a single type of investor.

“There is a lot of uncertainty globally and the markets are reacting quite violently to news but its happening all over the world. The global economy’s going down; we are seeing some dramatic things unfolding in the US economy right now, irrespective of what the domestic fundamentals are here.

Maratheftis said he would not be surprised if Gulf-based Sovereign Wealth Funds would make further investments in light of the opportunities presented by the US crisis.

“If they see an opportunity and if the SWFs believe that at some point the valuations will be attractive, I would not be surprised if they make investments,” he said.

Meanwhile, the receivership company handling the bankruptcy of Lehman Brothers says the future of the investment bank’s Middle East operations is yet to be decided.

Responding to an inquiry about the firm’s regional operations, a spokesperson for acounting giant Price Waterhouse Cooper told Arabian Business “we are just confirming this at the moment”.

The decision would be announced as soon as it was made, the spokesperson said.

The 60 people employed by Lehman Brothers in their Dubai and Qatar offices are yet to be told of their future, following Monday’s news of the bankruptcy of the US-based investment bank.

Dubai-based Merrill Lynch executives also said yesterday they were unable to comment on the takeover of the firm by Bank of America.

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