- The main Dubai stocks index has fallen 25% since hitting a multi-year high early May.
- Zawya.com
If, like many people, you have not paid much attention to the market in Dubai since theDubai World crisis, then you can be forgiven for wondering what on earth happened over there Tuesday.
Dubai’s stock index fell by 8.5% at one point. (On which, more here.) The plunge was amplified by a sharp lurch lower in the Arabtec Holding stock that triggered forced selling in other local shares. All told, the country’s index has fallen by a whacking 25% in less than two months, making this a classic bear market.
Dubai’s property market could be another bubble in the making, London-based Capital Economics said. Chart-watching technical strategists such as Shiv Prakash at NBAD Securities are also downbeat, looking for further stocks weakness.
Panic stations? Not quite.
The market, despite the tumble, is still up some 19% for the year. It rallied by 108% in the previous 12-month period, hitting multi-year highs a month ago, and overall sentiment remains upbeat.
The relatively positive backdrop persists because the outlook for Dubai hasn’t changed much: Its economy continues to grow on the back of strengthening trade and tourism, and its mainstay property market – which was sunk by the global financial crisis – hasrebounded.
Its winning bid to host the World Expo in 2020 helps, and in addition, the United Arab Emirates, of which Dubai is a part, was promoted to emerging market status by index compiler MSCI in May, drawing in funds.
Fahd Iqbal, the head of Middle East research for private banking at Credit Suisse, reckons a correction was overdue. “Valuations were already very over-extended and let’s not forget that historically markets tend to underperform in the 12 months subsequent to being upgraded by MSCI,” he said.
“Overall I think the bulk of the decline in Dubai is now behind us. Forward price/earnings ratios are more attractive than they were before and Dubai is now trading in line with MSCI World, compared to a 35% premium at the peak,” Mr. Iqbal said, noting “the long term outlook for the U.A.E. remains attractive and supported by an ongoing earnings recovery which is still very much in its early stages.”
In the near term though, the Dubai market could remain under pressure. As one trader said Tuesday, “don’t try and catch this falling knife.” After all, investors usually stay away during the summer months and the holy month of Ramadan, which starts in a few days.
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