New York Mellon warns of 'fast cash' reliance

Stock market gains will be fleeting if the UAE does not pursue more long-term investors, the bank says.

Stock market gains will be fleeting if the UAE does not ease its dependence on "fast money" from hedge funds and day traders rather than long-term investors betting on the country's future, Bank of New York Mellon has warned in a white paper released this week.

Short-term investors, who account for about 80 per cent of the country's trading, were one factor that caused markets to drop sharply after the extent of Dubai World's troubles became apparent last year, the report said.

Increasing market transparency and corporate oversight would be crucial in attracting investors who would not "bail out when the going gets tough", the report added. "One reason why the UAE suffered more than other markets [during the recession] is because there was no deep core of long-term investors," said Hani Kablawi, the regional chairman for BNY Mellon. Mr Kablawi said reforms would go a long way towards attracting more foreign investment.

"Long-term investors may require more time and effort to attract, but while they take longer to enter the stock, they also take longer to get out - they exercise rational judgement," he said. "If the UAE markets are undervalued, then access to a wider group of investors should create more demand. "The local markets are not yet deep enough, so the region has no choice but to engage foreign investors."