Government intervention encourages spending, reinforces investor confidence in UAE stocks, says Mubasher report

In recent statements, the government has pledged to reinforce public expenditure, help accelerate the recovery of the UAE economy before other countries.

Arab markets, as well as global markets, have recently witnessed a significant downturn as an offshoot of a recession that started off by hitting the US economy. Despite a $243.7bn bailout plan, by 2008-end, to support faltering financial institutions, the US economy has continued to shrink until the beginning of this year.

The US turbulence, then, created a ripple effect that struck economies across the globe, including the GCC region. Gulf stock markets sustained unprecedented losses. Some markets, such as Doha, recorded huge losses exceeding those in the US markets, while other markets such as the UAE remained relatively stable.

According to the report, the UAE market has suffered minimal losses compared to other Arab markets since the beginning of this year. The report also pinpointed the measures taken by the government earlier this year resulting in the revamping of local economy, especially in Dubai, whose open-market policy and vast foothold in the real estate industry, have subjected this emirate more particularly to the credit crunch fallout.

Consequently, the UAE Government has supported local banks by guaranteeing deposits and cutting interest rates. NASDAQ Dubai has likewise received support through the refinancing of a $5.2bn loan through a syndicated facility from 11 local and international banks. Furthermore, the Dubai Government has sold $20bn worth of bonds of which the central bank holds 50%.

The report also uncovered that, of the 36 companies operating in Dubai, which disclosed their financial results during the month of February, 19 reported a profit drop while 16 reflected higher-than-expected profit growth, thus showing an improvement in the performance of NASDAQ Dubai, which accounts for about 40% of the total size of GCC stock markets.

ARABTEC, for instance, made a net profit of Dhs945m in 2008 or a 77% higher than 2007. Dubai Islamic shares also went up 25.3%; a remarkable achievement amid other stocks, such as Global, plummeting 67.59%.

Like other oil-exporting countries, the UAE has been impacted by the significant decline in oil prices that took place on the back of global prices reaching $147 a barrel in June 2008. However, the UAE, particularly Abu Dhabi, dominating most of UAE's oil reserves, has made high cash surpluses over the past years from oil revenues.

The government employed those amounts to pump in a total of $16bn to (boost) liquidity levels in the banking sector. These measures helped the Abu Dhabi Exchange index rebound after disappointing results at the beginning of the year. Abu Dhabi Exchange (ADX) has consequently soared about 7%.

Moreover, the financial results of various local companies also played an effective role in restoring investor confidence in local economy. 53 companies posted their financial results, 28 of which reflected a surge in annual net earnings in F08.

The report added that, given the decline in crude oil prices and a slowdown in the real estate sector, investor attention has been diverted towards gold, whose unique characteristics have made it a popular investment option in many parts of the world.

According to recent studies, net retail investment in gold increased by 136% across the Middle East in 2008, while total demand on gold in the region in the fourth quarter of 2008 rose one per cent compared to the prior-year period.

These developments prompted the World Gold Council, in cooperation with NASDAQ Dubai, Dubai Multi Commodities Centre (DMCC) and Mubasher, to launch the first-of- a-kind Shariah-compliant platform to trade gold bullion in Dubai. The Islamic gold securities are listed on NASDAQ Dubai under the trading symbol 'GOLD.'

Moreover, each stock gives access to precise amounts of specifically-identified, exclusively-owned gold bullion, providing investors with a pioneering investment instrument to trade holdings in gold bullion in a Shariah-compliant manner. The new investment platform also gives NASDAQ Dubai a competitive advantage and helps strengthen its position among Arab stock markets.

Mubasher info stated that the gold securities, which will initially be worth 1/10 of the value of an ounce of gold per share, are a significant innovation in NASDAQ Dubai, particularly in view of a greatly increasing interest in gold. This is attributed to investors' pursuit of diversifying their investments in the wake of the global financial crunch.

The new investment platform provides a safe and inexpensive gateway for investors from all over the world to trade in gold bullion without the need to pay the additional costs normally associated with insurance, storage, and commercial transactions associated with gold trade.

Recent surveys have revealed that the majority of gold sales take place on coins and bullions rather than traditional gold jewellery; a tendency that will help drive the demand on the new gold securities in the Middle East, reputed for being the third largest market for gold after India and China.