Businesses in the Middle East are experiencing a period of “great uncertainty” resulting in risk aversion and increased funding costs.
Leaders in shipping, construction, banking and equities markets told Emirates Business that volatile markets and a past period of unrestrained growth have increased protective strategies to hedge against potential slowdowns.
“Construction is happening so fast that sometimes we no longer know the demand situation of the country,” Rizwan Sajan, chairman of Danube, a building materials supplier, told Emirates Business in an interview. “It is really very difficult to predict what is going to happen in the next five years. For the next two years, at least, we can feel comfortable.”
The GCC markets indices also ended up in red last month as the regional bourses succumbed to a strong bout of selling pressure. According to Kuwait’s Global Investment House (GIH), the number of shares traded in March dropped by 30 per cent compared to number of shares traded in the February. The breadth of GCC stock markets, said GIH, was skewed towards decliners as 192 stocks registered monthly gains as compared to 355 decliners.
The rising cost of energy and agricultural commodities have also put pressure on developed and emerging economies, such as the GCC, another investment bank said. Developed markets remained under pressure from the continuing fall out from the sub-prime crisis, DIFC-headquartered Rasmala said.
The 75 basis point cut in interest rates by the US Federal Reserve provided some support to markets in the second half of the month but the mood remains very wary.
Dr Nasser Saidi, Dubai International Financial Centre’s (DIFC) chief economist, told Emirates Business: “This is a period of a great deal of volatility in the world market due to uncertainty of the extent of the sub-prime crisis. It’s a period of a great deal of uncertainty in the regional and in the international markets.
“We have seen exchange rates fluctuate and commodity food prices rising very rapidly over this period. All these mean that there is a very big economic uncertainty and a greater financial uncertainty because of that,” said the DIFC economist.
‘Great uncertainty’ period for Middle East businesses