By Jason Benham
Dubai-based investment bank sees sluggish economic recovery after July, according to research note.
Stock markets in the UAE, which fell as much as 72 percent last year, are likely to rise 21 percent in 2009 as confidence begins to recover in the second half of the year, Shuaa Capital said on Sunday.
"Negative economic and corporate news flow will present a headwind for stocks throughout 2009, setting a grim mood, especially during the first half of the year," the Dubai-based investment bank said in a research note.
"But a sluggish economic recovery towards the second half of the year will allow the UAE markets to record gains of around 21 percent in 2009."
Dubai's main index DFMGI slumped 72 percent last year, the worst performer in the Gulf region. Abu Dhabi's benchmark ADI fell 47.5 percent in 2008.
Shuaa said UAE markets were likely to exhibit lower correlation with global markets this year as most foreign investors had already exited.
Meanwhile, local government bodies could invest in equities, which "could provide the stimulus for a sustained market rally".
"Local governments, having accumulated massive reserves from the previous oil boom, have announced that they will use their resources to stimulate the local economies, and some might even invest in local equity markets," Shuaa said.
But factors including a real estate correction in Dubai, liquidity squeeze in the banking sector and negative population growth would pose downside risks for the markets, Shuaa said.
Dubai's population was likely to fall 5 percent in 2009 on rising job losses, while the population of the UAE would ease 1-1.3 percent, said Shuaa chief economist Mahdi Mattar.
The global crisis and collapse of oil prices has drastically dimmed the economic growth prospects of the oil-exporting Gulf region. Shuaa Capital expects economic growth in the UAE to slow to 2.4 percent this year from 4.9 percent in 2008.
Profits of UAE banks and property firms are set to come under pressure as a result of the downturn.
Banks, for instance, face weaker investment returns, lower fee and commission income and the prospect of a growing number of loan defaults, Shuaa said, adding it expected deposit growth of about 8 percent and loan growth of about 3 percent.
Meanwhile, Shuaa expects a cancellation rate of 30 percent of properties due in 2010, and said there could be a 12-month delay on 50 percent of supply in the next two years. Still, it expects a total of 80,000 units to be delivered through 2010.
The UAE telecom sector, meanwhile, would face some pressures from a likely decline in UAE population growth. (Reuters)
They might have lost tonnes of money but their humour sense prevails... ...good show lads !