Real estate, lack of confidence to blame for Dubai bourse's decline

Dubai's real estate slump key factor in bourse turnover falling to six year low, says analyst
Real estate, lack of confidence to blame for Dubai bourse's decline
DECLINING CONFIDENCE: Turnover at the Dubai Financial Market has fallen to its lowest point in 6 years due to declining investor confidence and the real estate slump (Getty Images)
By Shane McGinley
Thu 13 Jan 2011 01:39 PM

Declining investor confidence and the decline of real estate sector are the key reasons for turnover at the Dubai Financial Market falling to its lowest level in six years, a senior banking analyst has said.

Dubai Financial Market last week reported that the value of shares on the bourse slumped nearly 60 percent to AED69.7bn ($18.9bn) in 2010, the lowest level for six years.

“The low turnover is due to the fall in investor confidence which reflected the reality on the ground,” said Dr John Sfakianakis, chief economist of Banque Saudi Fransi.

“Dubai's stock market decline had much less to do with the global financial crisis as much as its problems which impacted the banking and real estate sector.

“Most emerging stock markets as well as matures ones did very well last year, so Dubai's stormy market was due to the local bad weather,” he said.

Real estate prices in Dubai have fallen around 60 percent from their peak in 2008, while buyer defaults and project delays have become commonplace.

Around half of planned real estate projects in Dubai were cancelled in the wake of the downturn. 

Sfakianakis said a recovery in the stock market in Dubai would be dependent on resurgence in the real estate sector.

“Confidence will return when the nexus of property developers, bank assets and construction firms begin to recover,” he said.

The Gulf’s seven stock exchanges have seen turnover tumble in the wake of the financial crisis. The DFM merged its trading platform with rival Nasdaq Dubai in June in a bid to boost liquidity. The governments of Dubai and Abu Dhabi are said to be in talks to merge the emirates’ bourses.

DFM data showed real estate stocks were the most traded in terms of value in 2010, contributing to 67.3 percent of the total trade value. Shares in the investment and financial services sector were the second highest traded, accounting for 15.1 percent of the total value.

Shares in the communications sector accounted for just 3.6 percent or AED 2.5bn.

Foreign investors bought 44.2 percent, or AED 30.8bn, of the total stock traded and sold AED 30.6bn of stock. This compared to 23 percent of stock bought by institutional investors and 21.8 percent of sold shares.

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