Analysts see right cues for holistic recovery

source Emirates Business 24/7

The UAE will be at the forefront of an economic recovery in the region as it gradually recovers from the fallout of the global recession, according to financial analysts who spoke to Emirates Business.

They added that the recovery will cover all sectors, primarily real estate, through increasing confidence of local and foreign investors. Strong indicators are already available to confirm a recovery in the UAE's economy, especially with the continuing good performance by banks and several companies in other sectors. To add to this, oil prices are rising as well, they said.

Profits of most banks and companies are expected to be substantial at the end of this year, which will give greater impetus to the stock markets, completing the recovery of the national economy, the experts added.

Nabil Farhat, Managing Director of Al Fajer Securities, said the financial markets have already started to recover in a clear and promising manner, especially after the price of oil increased and stabilised at the $70 per barrel mark.

Also, companies disclosed better-than-expected profits in the second quarter of this year, despite there being a drop in the profits compared to the same period last year. This also made the share prices of the listed companies more attractive, said Farhat.

He said an expected drop in the dirham's value, as a result of a corresponding drop in the dollar's value in comparison with the world's major currencies, will improve the attractiveness of the UAE assets in the future, especially in the real estate sector.

Farhat also said liquidity was gradually improving, and the drop in shares prices will sooner or later boost the performance of the UAE bourses. International reports about a low-interest environment continuing globally until the end of 2010 will also reflect positively on the local economy.

Agreeing with Farhat was Dr Humam Al Shamma, Economic Advisor to Al Fajer Securities. He said foreign establishments were continuing to enter the UAE's stock markets and the markets themselves were sending out strong indications of de-coupling from the global markets and showing their own independent behaviour. This means the markets will only improve from here on, Al Shamma said.

The objective and psychological reasons behind the current strong link between local and world markets will disappear once the liquidity crisis is over, and the markets will go back to performing in accordance with the forces of the local markets and the companies listed in them, he said.

Al Shamma said there were strong signs of recovery in the UAE economy, which has been confirmed by recent reports and studies – the latest being a report by the Abu Dhabi Chamber of Commerce and Industry (ADCCI) predicting a rise of seven per cent in the gross domestic product, excluding oil, in 2009 to Dh565.7 billion compared to Dh528.7bn last year.

Many companies that disclosed their financial results recently reported an improvement in their performance in the second quarter of this year compared to the first, said Al Shamma, and added that these include – significantly – many real estate companies.

He said performances were positive in the banking sector, too, with profits growing by more than seven per cent in the first half of this year in comparison with the same period last year.

Al Shamma said: "I believe the ability of the country's economy to recover will be greater after the UAE has shaken off the impact of the crisis through strong government support of the financial system and the rapid measures taken by the Central Bank – the latest of which was finding a reference interest rate for the dirham."

Also, improvements will cover the real estate sector, which will be supported by the population growth mentioned in the ADCCI report. It expected the population to grow to 6.040 million in 2009 from 5.716 million last year, Al Shamma said.

Mohammed Ali Yasin, CEO of Shuaa Securities, said the economy was witnessing considerable growth, and the amount of bank loans had also gone up.

He added that the stock markets were showing positive and strong cohesion day after day, supported by an increase in local and foreign investment, which have been balanced in the Dubai and Abu Dhabi bourses.

Also, the second quarter results have mostly shown positive trends and point to an overall profitable year for this financial year.

The rate of completion in current real estate projects has also gone up, he said, showing that real estate companies were no longer facing major obstacles.