UAE stocks as the Trade of the Decade? « ArabianMoney

Today ArabianMoney editor Peter Cooper is flying to the other side of the world to give a presentation to the largest gathering of independent investors in the world in Vancouver.

This event is hosted by Agora Financial, publishers of many financial newsletters. He will be arguing that UAE bourses now represent the best global stock buying opportunity of this decade.

This presentation will explain how the Dubai and Abu Dhabi stock markets just have to be close to an important bottom, and that the time to buy stocks again must be very close.

The very fact that so many people reading this column will roll their eyes in amazement and say that things really are bad is one very good reason to be optimistic. For when the consensus is so low that is often the stock market bottom.

Market bottom indicators

We have the classic signs of a market bottom: low price-to-earning ratios; negative press; big announcements make no difference to stock prices; 11 brokers closed this year; a top broker just resigned; volume is down 90 per cent; everybody is talking about how much they lost on Dubai property; capital spending is lower; interest rates are falling; hotel room rates are down; foreign fund managers have given up; there was a capital flight after a property crash; Swiss bankers are very negative.

The Dubai Financial Market was the world’s best performing stock market in 2005, and the worst in 2006! There was then a 50 per cent retracement by 2008 before the renewed plunge that year. It looks like a classic double top. Consider this chart from wavetimes.com:

Surely from these levels a serious recovery is likely. The only question is how long it takes for this breakout. However, the UAE market moves on a seven-year cycle. The previous low was in 1999 post Asian Financial Crisis.

So on that reckoning we are only two years away from another peak. That might sound incredible but just look at how steep the upturn was in 2005. There is no reason why history should not repeat itself as it so often does.

Market spikes

From the experience of 2005 this phase can be readily spotted. It might well happen again as the result of a sudden and dramatic lift in the oil price when the US gets into its second or third stimulus package and sets off dollar inflation. Or it could be down to some sort of comprehensive peace initiative in the region – rather less likely perhaps.

You also have to consider the excellent business fundamentals of Dubai. The commercial economics that delivered faster growth than China from 2003-8 have not died, despite the real estate crash.

Airport passengers and cargo grew last year by 9.2 per cent and 5.6 per cent respectively against the global downturn. Duty free sales in the UAE airports are actually larger than for the whole of Japan.

The Jebel Ali super port was one of the least impacted by the recession. Multinational companies and banks continue to choose Dubai as their preferred location in the region.

Tourism numbers are holding up even if hotel rates are down sharply. A lot of very wealthy people live in the UAE, both citizens and tax exiles and they continue to spend money. Officials say the population of Dubai is still growing as people move back from neighboring emirates thanks to lower rental prices.

Debt solution in sight?

The Dubai debt problem is also well known now, and being addressed. Indeed, the final sign-off on the $23.5 billion Dubai World debt rescheduling post Ramadan could be the trigger for a big rally in Dubai stocks and doubtless Abu Dhabi would move in tandem.

Have we not already seen green shoots in the desert? On June 27th the second Dubai airport opened; there was an $11.5bn aircraft order for Airbus; and two schemes to restart 46 construction projects that are 60 per cent complete. The new strata law is good for local real estate.

Now the local stock market is ignoring these catalysts but if past precedent is any guide they will work. History has a habit of repeating itself, and stock markets do eventually rise again after having fallen.

The only caveat is that global stock markets look about to take a major tumble. Yet that works too as both global and local markets would then hit an important bottom, perhaps in October. But true that would be a month or so after the end of Ramadan.