x Abu Dhabi, UAESaturday 20 January 2018

Stock markets could be hit by Dubai being awarded Expo 2020

As Dubai stocks hit five-year high, brokers are expecting profit taking if the emirate is awarded Expo 2020 next month.

The Dubai Financial Market, above, has risen about 79.3 per cent so far this year. Sarah Dea / The National
The Dubai Financial Market, above, has risen about 79.3 per cent so far this year. Sarah Dea / The National

Dubai stocks hit a five-year high yesterday as regional markets that were closed for Eid played catch up to the US Congress move to pass a bill to reopen the government and raise the debt limit.

Shares listed on the Dubai Financial Market General Index (DFM) jumped 2.7 per cent yesterday, the biggest one-day price increase since September 15, amid a global market rally. They closed at 2,909.91 points, the highest level traded since September 2008.

The DFM was closed for trading last week in observance of the Eid holiday. Bourses from New York to Shanghai rallied last week after a deal was struck in the United States, the world’s largest economy, that ended a government shutdown, averted a default and raised its debt ceiling until February 7.

“It’s a catch up and reflection of what happened with the debt ceiling. The US market was up for the last week, while the region was on holiday,” said Tariq Qaqish, the head of asset management at Al Mal Capital, a Dubai-based investment bank. “The rally today is also a continuation of the positive momentum towards the UAE markets in general. The third-quarter results will be interesting to watch. All the news is definitely positive. That’s why you see the hype.”

Dubai shares have benefited from a sustained rally this year with hopes of a succesful bid by the emirate to host the 2020 Expo driving stocks higher in recent months.

But now brokers are expecting to see some profit taking.

“Since the vast majority of investors are convinced that Dubai will win the bid, one can argue that the positive effect of a successful bid is already priced in by the market,” said Fathi Ben Grira, the chief executive at Menacorp, a company ranked number one by market share in Dubai and an official bid supporter of Expo 2020. “The consequence of this is that the market might discount the announcement.”

The World’s Fair Expo is held every five years and attracts millions of visitors each time.

This year’s event will take place in Milan. Dubai is competing with Sao Paulo, Brazil; Yekaterinburg, Russia; and Izmir, Turkey for the Expo 2020, with a decision expected to be made on November 27. The World Expo has never taken place in an Arab country. Despite an obvious economic boost in the event that Dubai does win the Expo 2020, a sell-off of equities is expected to provide a healthy correction for the markets that have rocketed this year, said Julian Bruce, the head of institutional trading at EFG Hermes in Dubai.

“Infrastructure build-out, consequent population growth due to additional labour, administration and logistic requirements, and the long-term additional demand for hotel rooms should all provide an additional boost to UAE equities,” Mr Bruce said. “The concern I have is that there is so much expectation that Dubai will win that by the time any positive announcement hits the tape then we may very well be priced in and it will be a case of sell on the news.”

The DFM has risen about 79.3 per cent so far this year. The Abu Dhabi Securities Exchange has risen about 45.6 per cent in the same period, and closed at 3,830.47 points yesterday.

Dubai’s bid has six premier partners – Dubai Airports, Emirates Airline, Emirates NBD, Etisalat, DP World and Jumeirah Group. This approach to partnerships has gained valuable international exposure for the bid.

The expo theme is Connecting Minds, Creating the Future, and there are three sub-themes – mobility, sustainability and opportunity.