x Abu Dhabi, UAEWednesday 24 January 2018

Foreign investment set to drive markets

Amid signs that global demand for UAE goods and services is growing, foreign direct investment in the nation is also set to speed up according to new official figures.

Foreign direct investment in the UAE is set to accelerate, the results of a Dubai Foreign Investment Office (FIO) survey show.

About 81 per cent of global respondents who have investments in Dubai said they planned to keep or increase those investments.

But when asked about their total global budgets, 37 per cent said they planned to reduce investments. Overall, the UAE received more than US$73.4 billion over the past two decades - 26 per cent of total foreign direct investment in the GCC during that period.

The IMF forecasts the Middle East will have a GDP growth rate of 5.5 per cent this year, and 6 per cent annually for the next four years. This could add $1.5 trillion to regional GDP, which could reach more than $5tn by the end of 2014.

Foreign investment confidence is a promising indicator for the UAE stock markets.

Yazan Abdeen, a fund manager at ING, was optimistic about foreign institutional investment.

"In the coming months we are going to see an amazing movement in the markets. This is regardless of whether we will be reclassified to emerging markets," Mr Abdeen said.

He said there was unprecedented interest from foreign investors as the UAE became a regional business centre.

But there are some obstacles. An absence of pension funds and social security investments, which are typically long term, detract from institutional investment in the region.

"Part of the reason is that we don't have a well-developed insurance sector and government securities market, which mature over 10, 20, 30 years," said Dr Nasser Saidi, the chief economist at the Dubai International Financial Centre.

"It's what I call 'patient capital' - capital that comes in and stays a few years - but we are talking about seriously short-term money [in the UAE]."

But Dr Saidi expects institutional capital flows to increase when the UAE is reclassified as an emerging market, which is expected to happen next year.