2008 - a year investors would rather forget

The close yesterday on Emirates markets signalled the end of a year that investors would rather forget. Yet few are willing to predict a quick change of fortunes. "It doesn't look like 2009 will be any easier," said Hassan Awan, an investment research analyst at The National Investor (TNI), an Abu Dhabi investment bank. Abu Dhabi Securities Exchange (ADX) closed the day at 2,390.01, 1.5 per cent higher, led by banks. National Bank of Abu Dhabi gained nearly 9 per cent and First Gulf Bank was up 4 per cent after its board of directors voted the day before to limit foreign ownership.

Dubai Financial Market (DFM), the most troubled market in the GCC, ended the day at 1,636.29. The index lost 0.2 per cent as shares of Emaar Properties declined 3 per cent. The ADX ended the year down 47.49 per cent. The DFM took an even bigger hit, closing the year 72.42 per cent lower. The DFM's decline has been due largely to the prevalence on its trading lists of banks and property-related companies, the two sectors hardest hit by the global credit crisis. The ADX's performance for the year is only slightly worse than many other world indexes. The DFM, by contrast, has lost more ground than the global benchmarks.

"Abu Dhabi has been hit by the credit crisis, and slightly by the real estate bubble burst in Dubai. Dubai companies have been hit by the credit crisis and are much more reliant on cyclical sectors such as tourism, real estate and ports, all of which have been negatively affected by the global downturn," said Fahd Iqbal, the GCC strategist at EFG-Hermes. Just 12 months ago, all seemed primed for a fruitful year for Gulf investors, following three boom years. Oil prices were at record highs and rising, and the economy was awash with cash.

However, early in the second half, the ADX - formerly the Abu Dhabi Securities Market, which was renamed during the year - and DFM began their decline. At first, and for some time to come, the fundamentals of the country remained strong: oil prices were slowly declining but a barrel still traded in the mid or low $100s and few considered that it could crash to below $40, the Dubai housing market was still hot and banks were returning healthy profits. Strong consumer and corporate demand reinforced the notion that the party was going to run for a long time.

But banks soon found themselves short of cash as foreign speculators, betting on a revaluation of the peg, left the system when it became evident this would not occur. Suddenly, Dh180 billion (US$49bn) left the system and banks had to find capital to meet their loan business at a time when demand for borrowing remained high. . In a few months, things turned upside down, as they had in the rest of the world because of the credit crisis, the failures of banks and the disappearance of stand-alone investment lenders. All this pushed investors to the sidelines.

The Dow Jones Industrial Average is down 34.65 per cent, the S&P 500 is lower nearly 40 per cent and the DAX and FTSE 100 have lost about 40 per cent and 31 per cent, respectively. Investors are expected to remain wary of the markets for much of this year as well. "In the current conditions there are two things people want to hold on to - their jobs and their cash. No one is thinking to change jobs now and few are thinking to spend or invest their money," Mr Awan said.

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