DUBAI // Uncertainty over Dubai's debt worries will continue to weigh heavily on UAE equity markets, as analysts say a sustained rally is not possible until investors have a clearer picture. Dubai and its government-related entities owe as much as US$170 billion (Dh624.41bn), according to EFG-Hermes estimates. Dubai World, the emirate's conglomerate, in November said it would seek a standstill agreement with its creditors for an estimated $22bn of debt.
The benchmark stock index in Dubai has since retreated 23.2 per cent. The Dubai Financial Market General Index is down 13.2 per cent since the beginning of the year, while Abu Dhabi's main measure, the Abu Dhabi Securities Exchange General Index, has lost 5.2 per cent of its value this year. "Investors prefer to have a negative picture than no picture at all. "At least they know where they stand in terms of making investment decisions," said Shehab Gargash, the chief executive of Daman Investments, which controls assets worth Dh5.5bn.
"The perceived risk in the markets at the moment is much more than anticipated gains, which is keeping the investors away," Mr Gargash said. The real restructuring is yet to happen, he said, as seemingly the pace of negotiations is slower than expected. "All investors know is there are some talks happening, but anything clear is yet to emerge from that." The slide in the once booming property market and mounting debt worries are not just affecting the equities market.
The IMF on Tuesday downgraded its growth forecast for the UAE's economy to near zero, as Dubai World's debt restructuring and the emirate's property sector continue to drag on the national economy. "In 2010, overall GDP growth will be about flat," said Dr Masood Ahmed, the IMF director for the Middle East and central Asia. "Within that, we expect some continued contraction in Dubai and positive growth in Abu Dhabi.
"In 2010, we believe that the restructuring in the real estate side of Dubai will continue to be a drag on growth." The IMF expects UAE growth of between zero and 1 per cent this year, he said. Analysts agree that equities in the local markets are undervalued and have an upside potential of 30 to 40 per cent, but for that to happen, the economy needs to improve. @Email:skhan@thenational.ae