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29 March 2024

Dubai is the only positive GCC index this year

The brokerage expects “an upgrade to MSCI emerging market status in June” and believes that Dubai and Abu Dhabi economies should recover gradually in 2011 (GDP +3.3 per cent). (FILE)

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By Vicky Kapur

In a visible turnaround in investor sentiment on the local stock markets, the Dubai Financial Market General Index (DFMGI) is the only index in positive territory this year, with a year-to-date increase of 1.36 per cent as of today.

The rest of the GCC indices are all in negative territory YTD, with the Kuwait Stock Exchange down 8.34 per cent, the most among Gulf bourses. The Saudi index, the largest in terms of market capitalisation among Gulf nations, is down 1.32 per cent while the Muscat Securities Market is down 5.31 per cent YTD. The Abu Dhabi and Qatar indices too are down albeit marginally, at -0.39 and -0.42 per cent, respectively.

According to analysts at brokerage and research firm Rasmala, Dubai and Abu Dhabi stocks are becoming more attractive as the economy picks. “The UAE stock markets are some of the cheapest globally, with the economy hit by debt issues in Dubai and a real estate market under pressure,” the firm said in a Strategy Note titled ‘Time to Revisit the Mena region?’.

“While the country still needs to do a lot to regain investor confidence, we believe this is a good time to revisit investing in Abu Dhabi and Dubai,” analysts at the firm wrote in the note.

“[W]e think Dubai’s risk is coming down (albeit it still exists – we expect a further decline in UAE house prices in 2011 and about $31bn of GRE [government-related entities] debt due in 2011-12),” the report said.

The brokerage expects “an upgrade to MSCI emerging market status in June” and believes that Dubai and Abu Dhabi economies should recover gradually in 2011 (GDP +3.3 per cent).

It added that the “Dubai CDS spread has come down from 455bp at the beginning of March to 370bp currently, suggesting to us the discount rate could come down by up to 1 per cent, thus supporting higher valuations.”

The report further adds that the regional unrest, to which UAE and Qatar have been immune, is accelerating Dubai’s recovery, with an increase in the number of tourists and financial firms moving to Dubai and Doha.

“GCC-4 countries (Saudi Arabia, UAE, Qatar and Kuwait) are now relatively quiet, in particular, Qatar and the UAE, where no demonstrations have occurred to date. On the contrary, their hydrocarbon-driven economies should benefit from a rising oil price per barrel and it seems some sectors in Dubai have received a short-term shot in the arm, such as a larger number of tourists that would otherwise have gone to Tunisia and Egypt. It is possible that Dubai and Qatar could receive a boost in the number of entrants to their tax-free, independently regulated financial centres.”