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Abu Dhabi, UAESunday 22 July 2018

‘Dubai Index’ a necessary measure for emirate’s economic and financial health

Frank Kane's 'Dubai Index' would naturally include oil prices, real estate prices and stock market data. But it would also take in a few other elements to paint a full picture of the Dubai economy.
The monthly Emirates NBD Dubai Trackers give valuable information on the state of the economy but it could do with another index, writes Frank Kane. AFP
The monthly Emirates NBD Dubai Trackers give valuable information on the state of the economy but it could do with another index, writes Frank Kane. AFP

The world is awash with statistics, especially economic and financial ones. From the comfort of a Bloomberg monitor you can pull up minute-current figures on almost any aspect of any country, sector or commodity in the world.

So it might seem redundant to call for yet another “index” in the middle of this sea of stats, but I think it’s time we had a “Dubai Index” to measure the overall economic and financial health and credit status of the emirate.

Several organisations already analyse some of the integral components. The monthly Emirates NBD Dubai Trackers give valuable information on the state of the economy as measured by purchasing managers’ index information, and via property sales prices.

The property consultancy Reidin recently produced a report entitled “Dubai: A tale in three markets”, which analysed the correlation between property prices, the oil price and local financial markets, and interesting reading it was.

You realise intuitively that there must be a correlation between oil prices and the rest of the Dubai economy, even though energy revenue accounts for only about 3 per cent of its economy. With Dubai a trading and financial hub for the oil-dependent Arabian Gulf, the “feelgood” factor of high oil prices has a significant effect on levels of overall economic activity in the emirate.

Likewise, there must be a correlation between real estate and financial markets, especially equity prices. Property companies such as Emaar and Damac form a large chunk of local stock markets and their well-being is inextricably linked to the health of the stock markets.

Reidin found that in the past six months the correlation between oil and real estate prices has intensified, with concerns that the historically low oil price would negatively impact property prices. It also found – surprisingly – that the relationship between property and stock prices had inverted in the past six months or so, with Dubai stock prices rebounding about 25 per cent while property prices continued to languish.

So most of the raw information is already there. My “Dubai Index” would naturally include oil prices, real estate prices and stock market data. But it would also take in a few other elements to paint a full picture of the Dubai economy.

One would be global commodity prices, excluding oil, as they determine a lot of the economic activity that goes on in places like Jebel Ali port and the Dubai Multi-Commodities Centre, both vital free zone hubs in Dubai. I’d inject a bit of the Baltic Index, the measure of global shipping activity.

It would also include statistics from Dubai International Airport as a bellwether for its role as a global aviation hub, as well as stats from the hotels and malls to gauge the well-being of the vital tourism sector.

Finally, it would have a healthily weighted slug of the credit default swap (CDS) statistics to reflect international market estimates of Dubai overall creditworthiness. There is a lot of debt out there still that needs to be repaid or rescheduled in the next couple of years.

So that’s the Dubai Index. Now all I need is an economic statistician to help me compile it.

fkane@thenational.ae

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