UAE shares may fall another 10-15%: NBAD

The UAE equity market could see further downside in the coming months due to pressure from falling crude prices, and the chief investment officer of the UAE’s largest bank by assets suggests the best entry point may be when the market is trading around 3,500 points.

“I think if we enter now, we might have to wait 1-2 years for good return. We’re looking at downside of something like 10 to 15 per cent from the current levels. Then you should have real conviction to buy,” said Gary Dugan, Managing Director of Global Wealth CIO and Head of Investment Strategy at National Bank of Abu Dhabi (NBAD).

Dugan was speaking at the launch of NBAD’s ‘Global Investment Outlook for 2015’ report in Dubai on Monday.

“If the main commodity falls 50 per cent, it takes a while for the economy to recover. I think we should be patient and wait for the market to settle down. You are going to get time because oil price won’t return quickly and also you got to see whether the government remains committed to the spending plan. All these things will take time to clear out. Wait for the good opportunities,” he advised.

“We are not really encouraging people to buy today… (Markets) are up a long way from the lows. I would prefer buying 3,500 points – that would be my entry point. We have to reset your entry points given the damages being done by the falling oil prices to the economy,” Dugan said.

The sell-off on the UAE bourses continued on Monday as both the markets ended the day in the red.

The Dubai Financial Market General Index declined 3.6 per cent on Monday to close the day at 3,723 points on the back of oil prices falling below $48 per barrel yesterday. The Abu Dhabi index fell 0.8 per cent to 4,535. The market had recovered when crude moved above $50 a barrel.

NBAD’s chief investment officer said in the bank’s Investment Outlook report that some of the stocks are at attractive levels as they may be oversold.

“The UAE banking sector should continue to demonstrate operational growth in 2015, increasingly from business banking and non-interest/fee income sources such as asset management, more than offsetting the effects of greater competition in retail – and helped by loan impairments still trending downwards. UAE bank stocks can safely be bought for their yield,” he added.

Dugan was of the view that the regional bond market is the bright spot in the current dark economic situation where the equities and commodities prices have been dwindling down.

“We anticipate solid returns in Mena bond markets in 2015, supported by the high credit quality of issuers, improved market liquidity, and the still favourable macro-economic outlook for much of the region over the medium term, led by the lower-cost GCC oil exporters,” he said, adding that quite a lot of money from the quantitative easing by the European Central Bank will flow into the Mena bond market.

Inflation

Commenting on the inflation in the UAE, Gary said it’s disappointingly higher and will come down to more comfortable level in the first half of this year.

“General price level around the world is falling because the oil prices have come down and companies are under pressure to reduce prices also. I think the inflation will come down to more comfortable level in the first half of this year.”

He said there will be pressure on the companies and retailers also in the emirates to push prices down due to a decline in foreign currencies as goods have become cheaper in other markets which would force tourists to think about buying a product in Dubai.

Data released by the UAE’s National Bureau of Statistics showed that the inflation in the UAE hit 6-year high in December 2014 due to surge in rents and utility costs, reaching 3.1 per cent last month, up from 2.8 per cent in the previous month.

“There will also be pressure on governments not to increase utility bills and such things by big numbers this year. Higher inflation means UAE could lose the attraction for tourists. There is no way we can continue at current price levels,” he added.

Echoing UAE Economy Minister Sultan bin Saeed Al Mansouri’s comments, Dugan said crude prices could see recovery after the first quarter of this year. Mansouri also sees oil to start recovering from middle of this year.

Going further in 2015, Dugan said the expectations are that the world economy is moving into deflation not inflation as the emerging markets are not taking up the baton of growth and the West is not power house for long-term growth anymore.

The oil producing group Opec poured oil on the fire of deflation by maintaining the oil production at current level, resulting in lower crude prices, he said.

He highlighted China as a major risk in the first half of this year as it has to do a big rebalancing of debt and it’s ‘underweight’ on the Chinese equities as the country could be a mess of debt crisis.

Follow Emirates 24|7 on Google News.