By Richard Agnew
Investors have lost fortunes, and the outlook for equities is bleak. The figures speak for themselves. The Dubai Financial Market is now 41.2% down on its year-end closing figure. The Abu Dhabi Securities Market is down 23% since the end of 2005. Markets across the Middle East have been falling fast, with the Saudi Tadawul down 20% in the space of one week.
Stocks back on the rocks|~||~||~|Investors have lost fortunes, and the outlook for equities is bleak.
The figures speak for themselves. The Dubai Financial Market is now 41.2% down on its year-end closing figure. The Abu Dhabi Securities Market is down 23% since the end of 2005. Markets across the Middle East have been falling fast, with the Saudi Tadawul down 20% in the space of one week.
So it is a crash? Technically, a 20% drop is a crash. So yes, this is a crash. Some optimists are still hanging on to the word “correction”, but whichever way you look at it, investors have lost a serious amount of cash.
Yet the UAE Central Bank is predicting that growth will hit 8% this year, and inflation just 4%. Similar predictions are being made across the Middle East, with a number of analysts rushing to tell us that this is a great time to buy shares. Most of these are of course the same analysts that told us to do just that four weeks ago. Those of us who took their advice are likely to be hanging on to heavy losses at best.
The truth is that the region’s stock markets are in a state of panic. Or to be precise, panic selling. The boom in equities was always – as it always is – a false one. Few companies can ever really justify the meteoric rise in their share prices, but such events led in the past year to panic buying – artificially inflating the price of stocks. It took the recent results at Emaar, which under close scrutiny show a fall in fourth quarter earnings, to inject a dose of reality into the markets.
And that reality is that no boom lasts for ever. Central Banks are correct to predict continued growth in regional economies: the Arab world has a lot to be proud of, particularly in construction and technological growth. There is still a lot of money to be made, especially in real estate. Other investment opportunities are springing up by the day and will keep on doing so.
But as for investing in the stock market, don’t expect a sudden upsurge. It hasn’t happened in previous weeks. And it isn’t about to happen now. No matter what the analysts will tell you. History suggests that the last burst in the stock bubble, back during the technology boom in 1999, was a result of greed on the part of investors. Everyone wanted a piece of the same action.
This time around, hopefully lessons will have been learned. Now is not the time to buy. Not just yet. ||**||Let the battle commence|~||~||~|Next week sees the long awaited launch of Virgin Atlantic services between London and Dubai. And the start of a long battle between Emirates Airline and Virgin Atlantic.
Despite the many reassurances of Virgin boss Sir Richard Branson, he has done exactly what we predicted three months ago: slash the fares. If you travel on this route in April, there really is no choice: you either pay around half price on Virgin Atlantic, or full price on any other airline.
It is little wonder that almost every seat on every flight in April has been sold out. The key question is what happens in May? Virgin Atlantic’s profits are now over US$200 million a year, and the company can afford to continue this price offer for another month. If it does, the chances are it will sell out again. If that happens, Emirates Airline and other rivals will start to feel the pinch. And they may be forced to do the same.
All we can be sure of is the real victor will, at last, be the customer.||**||Pioneering move|~||~||~|Dubai likes to pride itself on being a pioneering emirate. And the introduction of new laws last week by His Highness Shaikh Mohammed bin Rashid Al Maktoum, is proof of that. The legislation issued will, for the first time, allow foreigners the right to buy property in selected areas. Limited freehold rights will be available to expatriates, at the discretion of the Ruler of Dubai.
Such a move has been four years in the making, but is still to be welcomed. It will, without a shadow of a doubt, contribute greatly to building investor confidence.
Over the coming years, many thousands of expatriates are expected to move to Dubai, given the huge boom the emirate is experiencing.
But rather than speculating on property in the hope of making a quick buck, this new law will allow them to buy homes to live in. It will give them a proper base in the UAE – and more importantly, a very good reason to move here. ||**||