The feel-good factor returned to UAE markets on the back of the US$10 billion (Dh36.73bn) relief package of Dubai World and its distressed property company Nakheel. Shares climbed sharply with the Dubai Financial Market (DFM) General Index surging 10.4 per cent, the biggest gain since October last year.
The Abu Dhabi Securities Exchange General Index jumped 7.9 per cent, the most in more than three years. NASDAQ Dubai, where DP World, the ports operator owned by Dubai World, is listed, surged by more than 18 per cent. Those upbeat results followed Abu Dhabi's pledge to send $10bn to the Dubai Financial Support Fund (DFSF) to help ease Dubai World's debt problems. Part of that money will be used to repay Nakheel's $3.5bn Islamic bonds that were due yesterday and had been seen by investors and analysts as a key test of Dubai's financial strength.
"Hamdullah, the money has come through," said Abu Hassan, a day trader on the Dubai stock exchange. "The sun is much brighter than yesterday. Today is history. We are flying high. Now you do not need to worry about the Gulf for another 100 years. We weathered the Iran-Iraq War, the Kuwait crisis and now this." Key stocks such as Emaar, Aldar Properties, Air Arabia and Etisalat reached limits on daily movements of 10 per cent in Abu Dhabi and 15 per cent in Dubai within minutes of the opening bell.
In the past few days, markets had started to recover from a heavy sell-off that followed an announcement on November 25 that Dubai World would seek an agreement to delay payments to creditors for six months as it worked to restructure $26bn of debt. The DFM General Index rose 7 per cent last Thursday, followed by a 3.3 per cent gain on Sunday. At the DFM yesterday, investors had a field day. One group pushed the sofas in front of the stock-quote screen to get a better view. They handed out biscuits while others smiled and posed for cameras.
Juma Ganam al Falasi looked to his co-investors. "We should salute Abu Dhabi," he said. "We are one country and everybody who says otherwise is wrong. The world is trying to keep us down but we will not let them." The mood was slightly less upbeat in Abu Dhabi despite the strong gains. Mubarak Ali al Mansori, a 44-year-old businessman, said the $10bn "signifies the bridge that ties Abu Dhabi and Dubai".
But he said: "I feel there is caution. There are still opportunities but investors are now trading with greater caution. There is no transparency and clarity in the market, and transparency will lead to greater confidence among foreign investors." The past few weeks have been harrowing for speculators, including those who invest in bonds. With the announcement of the $10bn relief and the pledge to pay the debt, investors said they were relieved.
"It takes a lot of the stress out of the system," said one fund manager whose firm holds Nakheel bonds. Not everyone is happy and living in Utopia. We shouldn't have gone through the past couple of weeks." The $26bn restructuring at Dubai World will be the big focal point going forward, said Amir Sadr, the head of global wealth management for Merrill Lynch in the Middle East. "Dubai World has some good assets. The question is whether they will be forced to sell them off or whether Abu Dhabi will continue to come in with money," Mr Sadr said.
Banks have also warned that other conglomerates, such as Dubai Holding, also carry large debt burdens. "If someone else defaults, the market will take another big blow," Mr Sadr said. * with reporting by Hadeel al Sayegh @Email:email@example.com