UAE to see influx of foreign investment: analysts

There will be large influx of foreign investment into the UAE following its inclusion into FTSE’s frontier market index but there could be negative effects if the inflow is in the form of hot money, financial analysts and brokers said.

In mid-2008, the UAE witnessed inflow of hot money on hope of dirham revaluation.

They said the inclusion into FTSE frontier market index also requires expediting the laws to regulate the local capital markets, Arabic daily Al Ittihad said.

Dr Mohamed Al Asomi, an economic expert, stressed the need to issue legislations governing the short-sale, which was the Securities and Commodities Authority (SCA) promised more than a year ago, in addition to setting up a fund to reduce the negative impact that may arise from inflow of hot money.

Al Ittihad said that some foreign hedge funds offloaded their assets of almost Dh60 billion to cover losses in their home markets due to the crisis which led to a sharp decline in the indicators of domestic capital markets.

Al Asomi believes that there is a need to expedite the completion of a package of laws and regulations governing the inflow and outflow of foreign investments, adding that short selling regulation is needed so that foreign investors don’t exploit the loopholes in legal system and their role is positive and beneficial to the economy.

Hamoud Abdullah, General Manager of Emirates Dubai National Brokerage Company, said the markets should be immunized from hot money risks.

He said foreigners are welcomed as investors but not speculators to make quick bucks.

He said there must be a regular review of foreign transactions every day at both the local markets.

Maha Kanzy, financial analyst at Al Fajr Securities, said SCA monitors transactions by foreign investors.

Kanzy said inclusion of the UAE into FTSE index will not attract foreign investment in the current environment as they are still waiting for positive sentiments despite a rally since the last week of holy month of Ramadan.

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