Adel Merheb ponders just how high local stock markets can go on back of recent rally
If you ever followed the UAE equity markets back in late 2008 then I am sure you watched in awe the extent of the drop in local stock prices at the time.
At one point by early 2009, the Dubai Financial Market General Index (DFMGI) had lost close to 80 percent of its value which is, by any standard, a loss very difficult to recover from, if ever possible.
When the markets rebounded in 2009, the investing/trading public was hopeful they could recover much of their losses. The rebound was quick, fast and global but it was not long before selling pressure kicked in and new price lows were established in UAE equities.
Some waited a year, others waited two and eventualy many, if not most, gave up on the rally. Even some of the financial experts who believed in the market’s very attractive valuation back in 2010 and 2011 were ready to throw in the towel.
Funny enough and right after most brokerage houses decided to close shop as trading activity dried up, the markets began to show signs of life again. UAE was among the top performing regional equity markets in 2012 and 2013 is looking like an even better year with not only stock prices moving up but with trading activity picking up as well.
I don’t want to sound like a typical market participant who gets overzealous by a strong run up in stock prices and I definitely don’t want you to assume that this is a prediction for the next month or two but I will say that I think we will all watch in awe how fast and how far this market can move up just as we did on the way down.
I think that at some point, we will see illiquid stocks turn liquid again and a market that looks relentless on the way up. That is not to say we will not see corrections throughout the rally but those who doubt the significant upside potential the UAE equity market has to offer should simply look at how far off we remain from the pre-crisis levels.
Despite the strong gains the market has registered lately, the Dubai index is still down by 68 percent from its January 2008 high.
* Adel Merheb is the Managing Partner of tradeyourmarket.com