Overseas investors drive Dubai stock market rally

Foreign investors are helping Dubai shares rally to 2008 levels. Overseas flows are already above Dh580 million as fresh money piles into shares of bluechip companies.

The DFM General Index has gained almost 17 per cent so far this year, nearing the 20 per cent threshold some investors consider as the beginning of a bull market. Pawan Singh / The National

Foreign investors are helping Dubai Financial Market shares to rally to 2008 levels.

Overseas flows are already above Dh580 million (US$157.9m) since the beginning of the year, primarily due toinstitutional investors buying into the market, as fresh money piles into shares of blue chip companies amid a global "risk-on" environment.

"With international markets doing well it is only logical that the last piece of the puzzle, frontier markets like Dubai, are now catching up," said Adel Merheb, the managing partner of Trade Your Market, a stock research and analysis company.

The rush of foreign interest has sent markets higher. The DFM General Index has gained almost 17 per cent so far this year, nearing the 20 per cent threshold some investors consider as the beginning of a bull market.

Saudi Arabia's benchmark has gained just 3.1 per cent over the same period, while Qatar has risen by 4.9 per cent.

Global markets from New York to Shanghai have recovered as European policymakers signalled strong intent to contain the region's debt crisis and as the United States managed to stave off a fiscal cliff at the 11th hour.

In the US, the Dow Jones Industrial Average last week touched 14,000 points, the highest level since 2007. In London, the FTSE 100 Index has risen 3.1 per cent so far this year, trading at about 6,200. In Asia, Hong Kong's Hang Seng Index has jumped 5.4 per cent to 4,959.50.

An improvement in the foreign perception of Dubai's economy has helped to boost Emaar's share price by more than 30 per cent so far this year, trading at its highest level since November 2008.

"We have been on a risk-off mode for so long. Fixed income has rallied, credit default swap levels have dropped, the property and macro outlook has improved, but equities have lagged behind," said Mr Merheb. "It's about time."

The trading behaviour of Arabs has been markedly different, however. Between January 2 and February 7, Middle East investors were net sellers of shares worth Dh580.57m, while foreigners were net buyers, according to trading reports released by the UAE bourses. "They have been tired from holding the shares for a long time," said Wadah Al Taha, the chief investment officer at Al Zarooni Group, an investment company in Dubai.

"Many just want to get rid of their problems related to leverage following the stock market crash, and exit once they reach their target to cover the cost, or reach break-even or get released from any commitment with their brokers or banks."

Before the global financial crisis of 2008, securities firms borrowed loans from banks and extended them to high-net worth clients as unregulated facilities. Brokerages were mired in a spate of legal disputes with their clients when markets slumped and trading volumes crashed.

In Abu Dhabi, expatriates and GCC investors bought Dh181.8m and Dh94.9m shares respectively since the start of the year, while Emiratis sold Dh277m.