Dubai set to benefit from second round of quantitative easing

Dubai: Dollar weakness and the strength of its services-based economy have ensured that Dubai is best positioned, compared to the rest of the Middle East and North Africa (Mena) region, to benefit from the Fed's second round of quantitative easing, according to a Bank of America Merrill Lynch economist.

"Most of the [Mena] countries are heavily exporting hydrocarbons which are trading in US dollar and so the comparison should be how that weaker currency could affect export performance," said London-based Turker Hamzaoglu, Emerging Europe, Middle East and Africa (EEMEA) economist with the investment bank.

"In that sense, the one that has the largest non-oil export or non-oil economy is Dubai and that is the one we single out," he said.

Re-export

External factors such as improving tourism numbers and re-export activity have also lifted Dubai somewhat, which has led the bank to pencil in growth of 1.2 per cent and 2.3 per cent in 2010 and 2011 respectively for the UAE, according to the lastest Mena Quarterly, which Hamzaoglu co-authored.

But he is cautious to point out that for the region as a whole the tailwind should not be taken for granted. "We should actually take it with a pinch of salt because in a sense the recovery of these countries in the region rests on a turn in the global business cycle," Hamzaoglu said.

The QE2 effects will help Mena markets play catch-up, considering their underperformance when compared to other emerging markets, and that is the reason "markets should focus on growth stories", he said. He singled out Saudi Arabia and Egypt in the longer term and Qatar in the short term.

"Growth stories in the region are underappreciated, so investors should follow them rather than the excitement of the QE2," he said.