Investors in the UAE have been quick to readjust their bearings each time winds of change sweep across markets and asset values. Image Credit: Shutterstock

All history is contemporary history. So it seems more than ever, where the norms of business and scholarly integrity of what is history and what is propaganda.

Pass the port and let the dogs of unreason bark their falsehoods seems to be the rallying cry as we peek through the recent gyrations in financial markets, with cheerleaders claiming these are but a blip in the overall trajectory of growth. And doomsayers stating with equal conviction that all is lost. Like it or not, from one end of the spectrum to another, history has become the fulcrum on which fortunes turn. Perhaps it has always been that way, but what do we do about it?

Let’s look at two reports from the recent past.

In October of 2021, S&P Global stated that the recovery of Dubai real estate prices had been ‘fragile’, uneven and still suspect to oversupply trends. At that time, average annual prices had risen by 4.4 per cent and rents were still falling; investors would be wise to remain cautious.

This analysis has largely disappeared in the narrative of last year, even as stats now show that there should be growing concern, given that the ‘anchor’ of asset prices has only grown heavier, with the twin forces of inflation and interest rates.

The second, in June 2021, speculated about the future of the DFM, given that there were de-listings taking place at that time and that the future of capital markets remained uncertain. Twenty months later, it has become obvious that it was the best time to buy shares at that time, and the subsequent wave of IPOs have unleashed an investor boom that may become even larger a phenomena than the real estate freehold rush in 2002.

Look to Dubai’s affordable communities

If it appears as if the obvious is being stated, then it is only because it is emblematic of the challenges contemporary investors face, in which the integrity of historical analysis is necessarily implicated. The success of investors over the long-term are largely based on where their starting points are; the lower the entry point, the greater is the probability of being successful.

As asset prices normalize, supply enters the stream, and reaches the point, where liquidity and inflation starts to erode the future potential of such gains. This necessitates that investors not only train themselves from ignoring daily headlines, but instead focus on the cash generating prospects of the business/asset that they are deploying their capital in.

Surely, even as headlines focus on the ultra-prime real estate space, there has been a quiet rally in prices and rental values in long ignored areas such as International City, Discovery Gardens, Remraam, Majan and similar areas that have not made the headlines.

Likewise, there has been a double-digit rise in values (and rents) of Grade B offices, which is unsurprising considering that there has been no addition to supply in this space for more than 12 years. As interest rates and inflation continue to remain high - the banking crisis may well snowball this into a reversal, but that in turn will lead to further recessionary spirals - heavily touted investments are looking expensive.

All attempts to justify their current values (ultra-high net worth individuals do not borrow) beggars belief and ignores the macro trends of a more subdued aggregate demand curve.

Retail investors hold sway

By way of comparison, real estate prices in the greater Toronto area (which enjoyed an unprecedented boom) have fallen by as much as 35 per cent from their peak in 2022 as runaway prices fell back to earth. To extend this line of thinking to the capital markets, generally, IPOs are not considered attractive investments but there is nothing inherently wrong with going public.

Only that the starting point of the valuation is always the critical factor. By that metric, valuations in the UAE capital markets remain generally attractive (more so given the emphasis on cashflow generation). Interestingly, the retail investors are the ones coming out in force even as institutional investors start getting subdued, as evidenced by the Al Ansari IPO process.

Investing is not some sort of vague feel good state of mind that comes with a subscription to the leading financial publications, but rests on bedrock principles and practices, which at its core, look at ‘cost of money’ and then farm out into scarcity and opportunity.

It also means by definition of going against the zeitgeist of the times, with the presupposition that there might well be long periods where the laws of financial gravity are suspended. We have gone through a period where there was no alternative to technology. Indeed, no alternative to risk as it is conventionally defined.

Yet that period appears to have been the real aberration in history. The road ahead looks to be one where there will be higher inflation and interest rates. The prepared mind is one that focuses on overcoming and adopting the Ecrasez l’infame mindset.