Key UAE asset classes poised for strong recovery

Dubai: Key sectors of the UAE economy such as real estate and financial services are poised for strong growth as the downturn in these sectors seems to have bottomed out, Shehab Gargash, managing director of Daman Investments, said Tuesday.

"The UAE economy has come a long way from 2008-09 when it was gripped by the global financial crisis. Clearly the liquidity situation has improved, central bank statistics indicate that there is an upsurge in bank deposits although the loan growth is yet to pick up," said Gargash.

Although the UAE economy too faced hardships on account of the global recession, its economic policy proved to be sustainable, according to Gargash.

"The UAE's economic policy during the global turmoil has proved its practicality and viability in difficult times. While the government extended its support to some of the key sectors like banking and infrastructure development, it largely kept away from intervening in markets reflecting its commitment to free markets," he said.

Sustainable model

Despite all the negative publicity Dubai attracted following the global financial crisis, Gargash said the emirate has proved that it has a sustainable economic model.

"All those who predicted the end of Dubai's economic phenomenon following the global financial crisis are now eating their words and will continue to do so," he said.

While all key indicators of the economy such as retail sales, hotel occupancy rates and tourist numbers are nearing the pre-crisis levels, Gargash said the surge in liquidity in the banking system is likely to improve loan growth and result in a strong recovery in asset prices such as stocks and real estate.

While the bank deposits in the country grew by 11.48 per cent year on year in the first half of this year the lending grew by 2.58 per cent, clearly indicating a lag in the loan growth. Analysts expect the fund flows from countries that have been going through political turmoil in the region is going to further improve liquidity in the banking system.

"Banks can't hold on to cash for too long before they started lending. The signs to relaxation in the lending is visible in mortgage sector," Gargash said. While mortgages grew year on year 15 per cent in 2010, real estate loans as per cent of total credit facilities stood at 17 per cent of total loans and advances by banks.

Improved bank funding to the real estate sector combined with cross-border fund flows from countries affected by regional political turmoil is also expected to revive real estate prices in the UAE.

While the UAE stock markets have remained flat for more than three years, the stock valuations are at their historic lows. Improving liquidity and potential investments from foreign institutional investors are expected to revive stock valuations.

Gargash does not see the inclusion of UAE stock indices in MSCI as a major factor that will decide the direction of the market in the next 12 to 18 months. "The impact of inclusion or exclusion of UAE stock indices in the MSCI Emerging Market Index is more psychological than real. After all, the UAE market represents only about 0.06 per cent of the index," Gargash said.