Why the UAE bourse will have its day

The Saudi Arabian and Kuwaiti bourses have roared ahead this year, with the UAE plodding along as the tortoise to these two hares.

Yet there is good reason to believe that long-term investors will be rewarded in the UAE with the patience of the tortoise winning out over its flashier rivals.

For one thing speculation has driven the KSE and Saudi bourse, particularly since the summer and we have already seen one correction. If you want to see real economic investment you have to look at the UAE, and the $18 billion going into Dubai real estate over the next two years or the massive expansion of oil and gas production in Abu Dhabi.

A year or two down the line and this investment is going to be reflected in the profits of local companies. The increase in population alone in the UAE is going to be excellent for business profits all round. Higher profits mean higher share prices.

It has to be said that the present price/earnings ratio of the UAE of 17.5 times is very modest given this earnings outlook. This p/e level is more like that of a mature economy than an emerging economy with tremendous growth ahead.

And it is not as though this growth is in any doubt. The phenomenal investment is committed, in progress and if you look around Dubai the evidence is in the cranes hovering over your head.

Perhaps a new stock exchange structure is required to create an equity culture in the UAE. Well, hold on a minute, the Dubai Regional Exchange is being formed and investors will not have long to wait. It is happening, right now, and only a little patience is required.

The DRE has an obvious place to find new candidates for listing: all the new para-state Dubai companies, and can also develop a Government and corporate bond market.

But strangely few investors seem to have realized that the UAE is on the brink of an equity boom. The tortoise beat the hare in the children's fable and the UAE's investment programme is the best reason to buy local equities.