Markets jolted back to life

On the floor of the Abu Dhabi Securities Exchange, one of the region's largest bourses, traders greeted news of Dubai World's debt proposal with a standing ovation and later passed around celebratory trays of baklava. In Dubai, the mood was similarly jubilant and only one of the 40 local stocks listed on the Dubai Financial Market (DFM) finished the day down.

The announcement last November that Dubai World was requesting a debt standstill reverberated through regional stock markets. The proposed agreement released yesterday jolted them - at least temporarily - back to life. "This news, people have been waiting for it for a long time. All the stocks are up, in the green, mashallah," said Sobhi Mohammed, a Jordanian investor who lost a large percentage of his savings in last year's market decline.

Yesterday's news was the cresting of a wave that had been building for weeks. As reports came out about the progress of Dubai World's talks with creditors, investors sensed a favourable deal was imminent. The DFM General Index advanced 16.2 per cent after March 1 while Abu Dhabi's main measure added 6.5 per cent. But even as traders hoped for the best, they braced for disappointment. "We knew a mildly positive, or vague confirmation, would not do anything for the markets. It needed to be strong," said Rami Awwad, the senior business development manager with Al Awael Securities in Abu Dhabi.

Most traders viewed the proposal as stout. Volumes surged past Dh2 billion (US$544.4 million), more than three times the averages from earlier in the week. The DFM still trades 11.8 per cent lower from where it was prior to Dubai World's request for a debt standstill in November, while Abu Dhabi is down about 0.2 per cent.  Despite the euphoria yesterday, most analysts said they anticipated the optimism would not sustain more than a short rally. Saud Masud, the head of Middle East research at UBS in Dubai, was among those who noted that the announcement did bring some clarity to the market but did little to improve the poor fundamentals in the economy.

One potential catalyst on the horizon would be improved credit ratings for Dubai companies. Farouk Soussa, the head of Middle East government ratings at Standard & Poor's, said he saw the proposal as "extremely positive" and pledged to reassess the credit ratings status of five Dubai Government-linked firms. An official at Moody's ratings agency also said Dubai's plan was "a positive first step" in addressing the uncertainty over the debt restructuring.

Around the world, the announcement helped lead the MSCI Global Index up slightly but did not drastically move markets in the same way as they did last November, when Dubai World's troubles started an extended slide in equities from Tokyo to New York. Some analysts said they hoped the positive news would entice institutional investors to take a fresh look at Gulf companies. "Unfortunately, the world saw Dubai and the Gulf as one, and lacked in differentiation. This is going to be positive for the region overall," said John Sfakianakis, the chief economist at Banque Saudi Fransi, based in Saudi Arabia.

Then there were those who said the proposal did not clear up questions about what exactly the Dubai Government would guarantee and whether other entities would need to be restructured. @Email:[e-mail] [e-mail] [e-mail]