UAE stocks should soon hit the bottom, buy villas!
The Dubai Financial Market closed at a four-year low yesterday after a 17 per cent fall this week alone. It will therefore not be much comfort to investors to realize that a bottom must be close.
The obvious parallel is with what happened in 1999. Of course it was a different world then with an over-the-counter stock market and no trading floors in the UAE. Today there are three, the DFM, Abu Dhabi Securities Exchange and Dubai International Financial Exchange.
However, the pattern is very much the same. Oil prices tumbled below $10 in 1999 and brought stocks tumbling to the floor with stocks like Emaar Properties down more than 80 per cent from their peak values of around AED160 or AED16 when adjusted for share splits since then.
History repeats itself
Today Emaar is AED3.74, still above its 2000-2003 trading range of AED2.4, but a considerably larger company than at that time, and once again below net book value.
But investors should think back in time, and not that far. Less than a decade ago Emaar investors thought the world had ended – and for those who sold or had to sell it was – but the stock went on to deliver a 15-fold rise in price for anybody who held and sold at the peak.
I just think that has to be a message for investors who are about to throw in the towel and give up on Dubai. This is a dynamic emerging market and the upside can be as big as the current downside. All business problems can be overcome, this is a business cycle not a terminal illness.
On the other hand, the restless energy of stock market speculators is also a constant in history. They tend to go from extreme optimism to extreme pessimism. Now we are approaching the climatic phase of pessimism, known as the ‘error of pessimism’ because it gets overdone.
Villas boom
However, it will take a few years for local speculators to make good their losses and regain the confidence to enter the stock market again – no doubt when most of its gains are already made. In the meantime, I would expect some narrow classes of local investment to benefit such as completed villas.
Investors who managed to exit the stock market early on now have money, and others will not be putting their cash into the stock markets for some time. Where then to invest?
Local villas with restricted supply and steady yields offer a safe haven in this crisis, and could always be sold in the future to finance another foray into the stock markets.
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Yesterday i wrote, Dubai always gets it right, after reading the gulf news today, i take it back. “Punishing speculators and protecting developers” by redefining law 13 no less… Opps, i wish government officials wouldn’t say things like that in the middle of a global financial crisis. Dubai needs to be a safe haven for global investment not be seen to actively drive the real-estate market down even if its out of their hands. And for the doomsayers gloating – it will impact us all.
DD
November 13, 2008 at 6:17 pm
Dubai
Admittedly demand in the villa market is not what it once was but yields are still great. Global sentiment aside, there is simply no finance available – which could explain why. The thing about being a rich country with lots of money, it doesn’t affect the local economy unless you have a mechanism for injecting (lending) it into the economy. No doubt this will be addressed shortly, since Dubai always seem to react quickly and so far has always got it right, lets hope anyway.
A little more worrying is the reinterpretation of the law 13 on an almost daily basis by RERA depending on which developer is putting them under pressure…..
Abu Dhabi
This market has a few more concerns then Dubai. No doubt its amongst the richest cities in the world which fundamentally looks a great investment. However, the market is utterly static. A couple of developers pushed the prices up a little to quickly and there is also absolutely no finance (except for a couple of small villa projects – which when built could be a good bet) and the next few months will be crunch time for investors.
In the current market, do you make the next payment on projects barely begun or even launched especially when no property laws are in place? Is it good money after bad? Will developers foreclose on late payers or re adjust payment schedules to prevent a freefall? Do they have the right management experience to manage difficult market conditions? Are they even concerned about investors, its not like they need them, buyer beware.
It’s going to be an interesting 3 months in Abu Dhabi. I guess it will all come out in the wash, no pun intended:)… I hope its not the case but I think this market could get messy for investors – sadly, but maybe, just maybe someone in a position of authority can react in time.
Either way, Completed and Near Completed Villas in Dubai look the best bet for long term rents and Apartments on Palm J and Marina for short term lettings.
DD
November 13, 2008 at 12:42 am
From MoneyWeek.com today, a case of great minds think alike? Probably not…
“Are we getting close to a trade-able bottom?
This is usually a decent time of year to buy stocks. The sequence some of the smarter traders have been looking for is:
1. Big declines into October and an October low. We got that. As I have said before, October is the Stock Market Crash’s month of choice.
2. Then a violent bounce. We got that in the run-up to the US election.
3. A November re-test of the lows. We seem close to ‘enjoying’ that now.
4. A nice tradable rally which would take us into the spring.
5. Then the bear market resumes its suffocating grip.
I must say it’s the pattern I’m now looking for. But the problem I have with it is this: who is going to do the buying? Where is the stimulus going to come from?
This has been a traders’ market and the old-fashioned investor has been hammered. Why would he deploy any capital now? Indeed, who has any money? Any purchases you make may yield a quick profit, but you have had to sell double-quick – like a day or two later – before that profit becomes a loss.
It’s possible that government and central banks’ reflationary efforts will finally boost prices. Falling Libor rates suggest that some liquidity is returning to the system. Markets may suspend reality and believe that Barack Obama will save them.
But this environment is so profoundly deflationary I find it quite unlikely. Many of us saw major problems coming from as far back as 2005; the problem is some, myself included, thought it would manifest itself as an inflationary, not deflationary, collapse. But we have learned, as Bob Hoye of Institutional Advisers (www.institutionaladvisors.com) puts it: “Mr Margin packs a far greater punch than Mrs Money Printer.” In other words, the deflationary impact of deleveraging far outweighs government attempts to reflate – so far at least.
I was thrashing all this out with someone yesterday, and we both realised we felt rather despondent and depressed. It was then that the famous Cycle Of Emotions came to mind.”
peterjcooper
November 12, 2008 at 3:43 pm