How the DIFC will impact UAE share prices

By international standards this would point to a stock market where the local economy is performing in line with the world average, and where not much was happening of note.

The law paving the way for the Dubai International Financial Centre should therefore serve as a massive alarm bell to investors. 'Wake-up! The UAE is booming and the global capital markets are about to be set up in Dubai!'

It is remarkable that the price to earnings ratio is not much changed from 1998 after the crash from the last share price boom of 1997.

Somebody once said investment in stock markets is like pulling at brick on a piece of elastic; for a long time the brick will not move, and then it hits you in the face.

After some years of reporting the undervaluation of the UAE stock market, this columnist is getting a bit tired of writing the same thing. However, you just have to look around at what is happening in Dubai and across the UAE to realize that a great deal of pulling on the elastic is going on right now.

That means the investment brick will fly very soon. We have seen some rumblings recently. A massively oversubscribed IPO for Amlak Finance whose share price is up from Dhs1 to Dhs2.3 since listing just two weeks ago; lots more IPOs are now in the pipeline.

Real estate is probably the culprit for the long time taken for the local stock market to begin to reflect the reality of high profits, high dividends and incredible immediate growth prospects in the UAE. Real estate has distracted investors from local shares which have thus remained significantly undervalued.

The DIFC is a hugely important step. There will be thousands of new, highly-paid financial services staff arriving in the country on the one hand. And on the other there will be a massive change to local capital markets to consider.

The UAE bourse will benefit directly from the Dubai Regional Exchange project which will funnel liquidity and widen and deepen the local equity market. Standby for take-off, local equities will have to be revalued to reflect the new business environment.