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Sleepless in Dubai as Traders Rejoice Eight-Fold Volume Gain

27 Mar 2012

Just four months ago, share prices and trading values in Dubai fell to the lowest levels since 2004. Now stock trading has increased eight-fold, the most among the world’s 40 biggest markets, as the emirate rebounds from its biggest financial crisis.

“In December, you could fall asleep at your desk and wake up and nothing would be happening,” said Waleed Al Khateeb, 37, the senior finance manager at Daman Securities LLC in Dubai. This year, brokers are working non-stop “dealing with this increased activity,” he said in a March 15 phone interview.


Financial data is displayed on a screen at the Dubai Financial Market in Dubai, United Arab Emirates. Photographer: Duncan Chard/Bloomberg
The Persian Gulf financial center was upended in 2009 and again in 2011 by Europe’s debt crisis, popular uprisings in the Middle East and speculation that Dubai’s borrowers will struggle to repay about $10 billion of debt due this year. Now, investors are returning after the European Central Bank bolstered credit markets, the sheikhdom evaded protests that turned violent in nearby Bahrain, state-owned companies refinanced debt and developers posted earnings that beat analysts’ estimates.

Dubai’s DFM General Index (DFMGI) surged 22 percent this year through yesterday, the third-best gain worldwide after equity gauges in Egypt and Vietnam. The measure is still 74 percent below its 2008 peak, before Dubai’s real-estate bubble burst and the emirate required a $20 billion bailout led by Abu Dhabi to repay debt. The DFM index trades for 10.6 times estimated profit and 0.7 times net assets, compared with multiples of 10.6 and 1.7 for the MSCI Emerging Markets Index (MXEF), according to data compiled by Bloomberg.

Economic Recovery

The DFM General index climbed 0.3 percent to 1,660.94 at 11:19 a.m. in Dubai.

Credit markets also show improving sentiment. Yields on the government’s 7.75 percent bonds due 2020 have dropped 67 basis points, or 0.67 percentage point, this year to 6.25 percent, within four basis points of the lowest level since the debt was issued in September 2010. Credit-default swaps on Dubai fell 110 basis points to 335 basis points, compared with 375 for Italy, according to data provider CMA.

Dubai’s economy, which contracted by 2.4 percent in 2009, will expand by as much as 5 percent this year, the government said on Feb. 15. Home sales increased 67 percent by value in the fourth quarter from a year earlier, Land Department data show. Tourist arrivals rose 10 percent in 2011 as hotel revenues gained 20 percent, the emirate said March 7.

The 30-day average value of shares traded on the Dubai Financial Market (DFM) soared 725 percent to 491 million dirhams ($134 million) yesterday, from a seven-year low of 59.6 million dirhams on Nov. 27. The value of shares traded in Saudi Arabia more than doubled for the second-biggest increase among major markets, data compiled by Bloomberg show. Abu Dhabi Financial Services and Al Ramz Securities LLC said the increase in trading may help them post a profit this quarter after all five of Dubai’s top brokerages reported losses in 2011. Nabil Rantisi, who left his job in June as the director of brokerage at Rasmala Investment Bank Ltd. in Dubai to help start a local delicatessen named 1762, said he may return to the finance industry should the rebound continue.

“This is a sign of a genuine turnaround and not just a bear market rally,” Rantisi said. The rally will benefit “brokerage houses who decided to stick around,” he said.

Many did not. About 50 of the 98 brokerages operating at the end of 2008 have closed or had their trading licences suspended, according to data on the market regulator’s website. Shareholders of CAPM Investment PJSC, an Abu Dhabi-based financial services company that operated a Dubai stockbroker, decided last week to sell itself to a U.A.E. lender after incurring losses, Chief Executive Officer Yasser Geissah said in a March 22 interview.


Markets in Dubai, which borrowed more than $100 billion to transform itself into a financial and tourism hub, suffered a meltdown in 2009 after state-owned holding company Dubai World said it was seeking to freeze debt repayments.

Even after dropping this year, Dubai credit default swaps are 225 basis points more expensive than contracts on China, the biggest emerging economy, up from 61 basis points four years ago, according to CMA, which is owned by CME Group Inc. (CME) and compiles prices quoted by dealers in the privately negotiated market.

Dubai Group LLC, an investment firm owned by Sheikh Mohammed bin Rashid Al Maktoum, the emirate’s ruler, is in talks with banks to reschedule payments on $6 billion of bank debt. Drydocks World LLC, which owns the Middle East’s biggest shipyard in Dubai, presented a plan to creditors earlier this month to restructure $2.2 billion of debt.