UAE needs to isolate from negative global sentiment

The UAE stock markets must conclusively break their correlation with global exchanges to sustain upward momentum in the longer term, according to Mohammed Ali Yasin, Shuaa Securities chief executive.

"The United States is heading for recession, while Europe can expect a slowdown at the very best, and so the rallies in their stock markets are unlikely to be sustained," he said. "But the UAE economy is still growing and can support a prolonged stock rebound, but only if we can isolate our markets from the negative global sentiment."

If this is achieved, the UAE could become a safe haven for overseas funds, especially now that the government has guaranteed all bank deposits.

"The Emirates could be the best place for foreigners to put their cash and the dirham's dollar peg means there is little currency risk," said Yasin.

"It will depend on how critical the situation is in foreigners' home markets, but if stock markets can continue to show growth while elsewhere slows down, then I expect significant foreign cash to return. Whether this will be just as liquidity or for investment as well is difficult to say."

However, the UAE authorities must also learn the bitter lessons from the influx, and subsequent sudden flight of foreign capital over the past 12 months.

This saw overseas funds pump money into stocks and bank deposits in the expectation of a revaluation of the dirham, before abruptly withdrawing this money after increasing turmoil in Western markets left them desperate for cash and the hopes of currency reform receded. "Last time, the money came in before necessary regulations were in place and it's much harder to implement rules after the fact," said Yasin.

The UAE has long stated it is an open economy and so will not try to restrict he free movement of capital, but Yasin still believes the authorities can still do more.

"Last month, the Central Bank announced that 90 per cent of hit money had left the market, but it's not just a question of revealing statistics," said Yasin.

"What will the authorities do in response to the withdrawal of this money? They need to be ready with funds to make up for the shortfall in liquidity."

Interbank lending has dwindled since July. Short-term deposits from overseas institutions were used for long-term loans, but once these deposits were withdrawn, the banks struggled for liquidity.

This cash famine has been a key contributor to the stock market crash of the past three months.

"It looks as though we are emerging from the most serious international financial

crisis for decades and we need to ensure we're better prepared locally for when something similar happens again," added Yasin.


DP WORLD SURGES

DP World surged 7.14 per cent yesterday on reasonable volumes.

It has increased by a third over the past two sessions and yesterday added 7.14 per cent to $0.60 after 19 million shares changed hands. Technical analysis suggests it will continue to climb until its neckline resistance area of $0.73. Depa also advanced, adding 3.33 per cent to end on $0.62.

No other stocks were active on the Dubai International Finance Exchange.