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Mon 25 Feb 2008 04:57 PM

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Gulf markets to withstand global slowdown

Strong fundamentals backed by high oil prices will spur growth, Borse Dubai says.

Gulf markets to withstand global slowdown
STRONG FUNDAMENTALS: Kazim said Gulf stock markets would withstand the global slowdown. (Getty Images)

Gulf stock markets are likely to withstand a global economic slowdown because of strong fundamentals backed by high oil prices, the chairman of Borse Dubai said on Monday.

"The economic fundamentals of the Gulf area are still very, very strong, given the price of oil is still at a very high level," Essa Kazim told reporters at the Sixth Developing Markets Forum in Cairo. Oil rallied to a record high around $101 a barrel last week.

A credit crisis that spread from the US subprime mortgage market to the banking sector has raised the risks of a slowdown in major economies that could hit also emerging markets as investors dump risky assets.

But while Gulf stock markets tumbled late in January along with other emerging assets, the region is supported by its vast oil wealth, the likelihood of currency appreciation in the medium term and attempts to diversify their economies.

"Even if [the economy] has a bit of a slowdown, this is not going to impact the flow of liquidity and the wave of wealth creation that is coming through," Kazim said.

Most Gulf markets have risen in 2008, led by the Omani stock exchange, which surged about 13%. The Kuwaiti bourse climbed almost 11%, followed by Abu Dhabi, which rose around 6%.

The worse performer so far has been Saudi Arabia, the world's largest oil producer, whose stock market lost 9% of its value, while Dubai indexes are almost steady.

Some analysts say the presence of foreign investors in markets like Qatar, Kuwait and the UAE makes these more vulnerable in any global emerging markets sell-off.

Kazim, however, said the Gulf's stock exchanges would perform independently because of its strong corporate earnings and economic fundamentals.

"Gulf stock exchanges should be theoretically decoupled with international markets. Because we have some international investments in our market, that from time to time affects the sentiment, but fundamentals are very strong," he said.

With gulf currencies pegged to the US dollar, Kazim said further expected interest rate cuts by the US Federal Reserve would help growth in the Gulf.

"This would help us in terms of the cost of borrowing," he said. "[Stock] exchanges and the real estate market would be the two sectors that would directly benefit from the expansion of monetary policy the Fed is pursuing."

The US central bank has already slashed rates two and a quarter percentage points since mid-September to 3% to help the economy avoid a recession.

Financial markets are pricing in a half-point cut in benchmark rates at the Fed's next meeting on March 18, as implied by short-term interest rate futures. (Reuters)

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