Stock markets in Dubai and Abu Dhabi rebounded yesterday, spurring hope that the market bottom had been reached. Speculation in banking circles has been growing that the Government could step in to prevent further falls after Dubai had dropped 64 per cent and Abu Dhabi lost 37 per cent so far this year. The Dubai Financial Market rose 8.18 per cent yesterday, with the Abu Dhabi Exchange up 3.3 per cent. Bankers said that the authorities had become so worried about the decline in stock values - and talk of investor dissent similar to what happened in Kuwait - that they may already have started supporting some key shares.
"The pain thresholds have been reached and Abu Dhabi might already have started to buy selected stocks," said a senior banking executive. Dubai closed at 2,142.85, with bellwether property stock Emaar up 15 per cent, the maximum allowed by the exchange in one session. Abu Dhabifinished at 2,486.68, led upwards by property stocks. Another property advancer was Aldar, Abu Dhabi's second-biggest property company - up 8.18 per cent for the day. The firm was tipped last week in a research report from HSBC as a key "shelter for investors".
"We continue to believe that Abu Dhabi, particularly Aldar, is likely to offer the best shelter for investors, while providing good appreciation potential,'' HSBC said in the report. "We prefer Aldar because of its strong ties with the Abu Dhabi Government, which we believe is likely to provide support in case of need." What started as bargain hunting in small volumes transformed into an across-the-board rally as investors shrugged off recent selling.
"There was some relief buying in the market after recent losses," said Vyas Jayabhanu, head of Al Dhafra Financial Broker. "Rumours about a government bailout for companies in distress are supporting some stocks." But some government officials think intervention is neither desirable nor necessary. Sultan bin Saeed alMansouri, the Minister of Economy, said the UAE would not follow Kuwait's example and intervene in the stock markets to prevent further losses. When asked on Sunday if the Government might intervene, Mr Mansouri replied: "No". He did not elaborate.
However, many believe that the Abu Dhabi authorities are also preparing to help the nation's home-loan market, as well as providing long-term finance to some of Dubai's largest companies in return for equity. One factor behind a recent dip in property prices on the secondary market has been the tightening of bank credit, with most lenders demanding downpayments of 30 per cent to 50 per cent, putting house prices out of reach of most would-be buyers.
John McGaw, the Dubai chief executive of Killik & Co, said there was likely to be consolidation in the property and banking sectors. He pointed out precedents over the past year, including the announced merger between Tamweel and Amlak, the two largest home-loan companies, and the completed merger of Emirates Bank and National Bank of Dubai. "As there have been precedents it would not be unreasonable to envisage further consolidation in such sectors, which would strengthen them," he said.
Yesterday it was revealed that Citibank has a "big exposure to Dubai... lots of billions". According to Win Bischoff, Citigroup's chairman, "the business model of Dubai is not bad. The DNA is similar to other big trading hubs". "We will continue that because it is an interesting area to be in," he said. Other Gulf markets struggled yesterday. In Kuwait's first day of trading after it was closed by court order last Thursday, the market fell 1.59 per cent. After trading closed, it was announced that Gulf Bank would raise 375 million dinars (Dh5 billion) in new capital through an emergency share issue, underwritten by the country's sovereign wealth fund. The bank, the country's fourth largest by market value, had to be rescued by the central bank last month after admitting steep losses due to derivatives trading. The bank said that its losses totalled the money being raised in the rights issue. The entire board is to resign.
Other Gulf markets posted only small gains or lost value - Doha rose a mere 0.1 per cent, Muscat was up just 0.41 per cent and Bahrain fell 1.39 per cent. The Saudi Tadawul was up 0.53 per cent. EFG Hermes was down 13.57 per cent on the Egyptian stock exchange, and closed at 15.99 Egyptian pounds. Egypt's largest publicly listed investment bank plans to buy back five million treasury shares from Nov17 to Dec 16.