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Markets Seen Gaining 21pc in 2009: Shuaa

DUBAI - Stock markets in the United Arab Emirates, which fell as much as 72 per cent last year, are likely to rise 21 per cent in 2009 as confidence begins to recover in the second half of the year, Shuaa Capital said on Sunday.

“Negative economic and corporate news flow will present a headwind for stocks throughout 2009, setting a grim mood, especially during the first half of the year,” the Dubai-based investment bank said in a research note.

“But a sluggish economic recovery towards the second half of the year will allow the UAE markets to record gains of around 21 per cent in 2009.”

Dubai’s main index slumped 72 per cent last year, the worst performer in the Gulf region.

Abu Dhabi’s benchmark fell 47.5 per cent in 2008.

Shuaa said UAE markets were likely to exhibit lower correlation with global markets this year as most foreign investors had already exited.

Meanwhile, local government bodies could invest in equities, which “could provide the stimulus for a sustained market rally”.

“Local governments, having accumulated massive reserves from the previous oil boom, have announced that they will use their resources to stimulate the local economies, and some might even invest in local equity markets,” Shuaa said. But factors including a real estate correction in Dubai, liquidity squeeze in the banking sector and negative population growth would pose downside risks for the markets, Shuaa said.

Dubai’s population was likely to fall 5 per cent in 2009 on rising job losses, while the population of the UAE would ease 1 to 1.3 per cent, said Shuaa chief economist Mahdi Mattar.

The global crisis and collapse of oil prices has drastically dimmed the economic growth prospects of the oil-exporting Gulf region.

Shuaa Capital expects economic growth in the UAE to slow to 2.4 per cent this year from 4.9 per cent in 2008.

Profits of UAE banks and property firms are set to come under pressure as a result of the downturn.

Banks, for instance, face weaker investment returns, lower fee and commission income and the prospect of a growing num ber of loan defaults, Shuaa said, adding it expected deposit growth of about 8 per cent and loan growth of about 3 per cent.