UAE stock market a good buy, this autumn

Indeed, UAE investors are a little bemused by all this sudden interest in their modest stock markets. It is quite flattering to have all this attention but do these new players actually know what they are talking about?

The big banks could be excused for finding local investors churlish folk. How can they be so gloomy with oil at $105 a barrel (at the time of writing) and little to suggest that booming oil revenues will come to an end anytime soon? You just need to find the right stock to lever into the oil boom and you are away.

Perhaps they overestimate the sophistication of the UAE stock markets. The tomes of analysts are not generally appreciated, something far closer to the animal instincts of fear and greed is what drives this market, actually it is what drives all markets at all times but perhaps it is more obvious here.

Global bear markets

What the Man-on-the-Dubai-Metro understands is that local stock markets are now tracking global trends. Global stocks are heading down and are likely to go down further just as soon as the US finally gets around to officially declaring a recession.

Therefore you do not want to be in global or local stocks right now. However, when it comes to investing for a recovery in values later this year then it might very well be possible to convert the Man-on-the-Dubai-Metro into a bull again.

Then you could argue that the UAE economy is well insulated from a global economic slowdown, and indeed poised to gain some impetus from low US interest rates, not to say inflation.

Low interest rates

Now the two sectors that will gain most from inflation and low interest rates are property and banking. Property prices will go up as the cost of borrowing comes down, making real estate more affordable. Bank spreads between the cost of money and lending rates will expand, increasing bank profits while their mortgage businesses will grow on the back of the real estate boom.

This could well inflate an unsustainable bubble over time, indeed it almost certainly will. But that would still leave plenty of time for local UAE stock investors to ride another nice rally in the autumn, perhaps after Ramadan and then cash out by the following summer just in case the party ends while they are on holiday.

In fact that is rather a pessimistic view of the outlook for the UAE economy in an era of super-high oil prices, massive proactive government domestic investment and economic liberalisation. But stock market investors are known for their short term horizons and will be weary of getting too carried away again like in 2006.

See also:
Dollar refuses to rally; bring on GCC revaluations
UAE inflation on upward trend
UAE stock crashes refocus investors into local property