Will Daman Securities get the UAE stock market right again?

Now Daman is trying to repeat this performance with the launch of its $55 million Second Emirates Fund following the market collapse of 2006. So will history repeat itself?

'We are very pleased to be back in the market with the introduction of The Daman Second Emirates Fund a few months after the closure of our very successful Daman UAE Value Fund,' said managing director Shehab Gargash.

The minimum investment in the new fund is Dhs200,000 - down from Dhs3 million in the first fund, and subscriptions close on March 18. But this is an open fund with monthly subscriptions and quarterly redemptions so it will be possible to join after this date.

With the UAE stock market the second worst performing bourse in the world for 2006, after Saudi Arabia, there is an argument that things can not get much worse. But Mr. Gargash admits that under certain circumstances the UAE market could go down 30-40 per cent from its present level.

Hard call

'It is hard to call an absolute bottom and conditions in 2007 are likely to be volatile,' he noted. 'There is a drag factor from the Saudi market which is still weakening but liquidity is strong and company profits are good.'

However, some analysts are cautious because the oil price has fallen back by a third and could fall further by the summer. The UAE has also not yet seen the widely expected real estate correction.

And according to a report published by Deutsche Bank this week, the local banks have an estimated $9.4 billion in loans outstanding from the stock market crash which they have decided not to write down due to the credit worthiness of the borrowers - mainly super high net worth emiratis.

'The banks are comfortable with this situation, and they have been proved right in the past in their judgement,' said Mr. Gargash. 'But if they were forced to take provisions then this would be bad for the stock market.

'With real estate we could see a rotation of money out of this sector and back into the local stock market, but real estate is not as liquid as equities'.

Wise management

It is this kind of wisdom that ought to attract investors to a fund like the Daman Second Emirates Fund. Active fund management by well informed local participants is essential to achieve the best results in these markets, and few firms or banks can match the performance of the first Daman UAE Value Fund's 35 per cent internal rate of return over five years.

Whether the second fund will equal this performance is impossible to say. But if the oil market was to resume its bull run after the current bear phase then UAE stocks may prove an excellent investment.

It is indeed hard to call a market bottom but this fund would seem a first-rate investment vehicle when you are convinced that the crash is over.