x Abu Dhabi, UAEThursday 27 July 2017

Exodus of foreign money continues

Foreign investors continued to file out of the Dubai Financial Market, selling a net Dh1.38bn worth of stocks.

Financial and property stocks - two sectors that represent the significant majority of listed businesses in the UAE - have been especially hard hit.
Financial and property stocks - two sectors that represent the significant majority of listed businesses in the UAE - have been especially hard hit.

Foreign investors continued to file out of the Dubai Financial Market last week, selling a net Dh1.38 billion (US$376 million) worth of stocks as they brought money home to meet obligations or shifted investments into other markets. Still, the selling amounted to less than in the previous week, when Dh1.66bn was sold by foreigners.

Saudi Arabia's decision to open its markets to foreigners, coupled with a corruption clampdown in Dubai and a strengthening US dollar, have all contributed to a shift of assets into other markets showing potential in the region, according to analysts and investors. The Dubai Financial Market, which did not trade yesterday, has fallen 21 per cent so far this year. "We decreased investments in Dubai over the last two weeks and increased our funds in Saudi," said Udo Schaeberle, the director of clients at BHF bank, the Abu Dhabi branch of the German wealth management company. "Definitely, Dubai is the market that has in our opinion the biggest risks, mainly from the real estate side."

Financial and property stocks - two sectors that represent the significant majority of listed businesses in the UAE - have been especially hard hit as talks of a "bursting bubble" grow more pronounced. Saudi Arabia and Kuwait are growing in appeal to foreign investors losing confidence in Dubai's volatile market. In trading yesterday, Shares of Saudi Basic Industries Corp (Sabic) and banking stocks weighed on the Tadawul, pushing it to its biggest one-day loss since January. The index closed 5.41 per cent lower at 8,044.79 points. Sabic closed 8.13 per cent down to 110.25 Saudi riyals (Dh108.10), its lowest close since October. Al-Rajhi Bank ended 4.99 per cent down and Samba Financial Group 5.92 per cent.

The Tadawul has fallen more than 27 per cent since the beginning of the year. "Saudi Arabia's market is pretty much down this year, but we believe there is huge potential with the change of policy, and in Kuwait the market is more mature, has a longer history, and investors there are more patient," said Mr Schaeberle. He added that while some foreign investors had opted to transfer their assets to India and China, he believed the region was secure and showing promise for the near future. "The amount we have invested in the GCC market remains the same, but it's just a question about where the money is - in this case, we shifted it to Saudi."

Industry experts suggest that Dubai's soaring property prices may peak next year before price increases taper off, particularly as the emirate takes measures to weed out short-term speculators. Dubai's property boom began in 2002, when it allowed foreign investors to buy property on a freehold basis. A Morgan Stanley report said that although property prices in the emirate had surged 79 per cent since the beginning of last year, it expected to see a 10 per cent fall in prices by 2010. Some analysts, including Mr Schaeberle, forecast an even bigger drop.

"We don't see Dubai getting better over the next couple of months, which is why we pull money out, but we don't believe that Dubai's economy will be hurt for too long," said Mr Schaeberle. "The case here is still good, especially given the low [stock] prices, good price-to-earning ratios and the market's high growth potential overall." Dubai's efforts to clean up its property market have dented investor confidence and sent property shares into steep decline, but are likely to strengthen investor confidence in the long run, analysts believe. New rules on off-plan sales - selling buildings before they leave the drawing board - followed more stringent mortgage regulations and clearer curbs on developers trading residence visas for home sales, all in an apparent effort to curb speculation.

Yet despite the logic put forth by analysts and brokers as the market turned sour, many observers remain unconvinced that the cocktail of troubling factors that have been advanced can account fully for the market's slide. "We sell shares immediately if we see risks of corruption, fraud or reputation risks," noted Mr Schaeberle. "I definitely think a clampdown on corruption will definitely play a [part] in the attitude of investors." @Email:vsalama@thenational.ae