Taking stock of the dismal market mood

These days whenever I visit the trading floors of Dubai Financial Market and Abu Dhabi Securities Exchange, my heart reaches out to the investors. Their chin-down, grim-face look is a painful sight. For no fault of theirs they have been put through such trying times. The number of jaws dropping every time shares plunge sharply is growing scarier by the day.

In my view the government is trying its best to salvage the situation. In fact the UAE Government was one of the first to take cognizance of the credit tightening situation and pumped hundreds of billions of dirhams into the system. However, that has proved to be ineffective for various reasons. The core of the issue is that banks have become - and rightfully so - extremely careful when it comes to lending. Our local banks do not want to go the Lehman Brothers way. So the objective for them is to survive this phase and they think it is prudent to do banking in a conservative way.

The markets are made up of many pillars - banking is just one of them. In the UAE, real estate and construction constitute 30 per cent of GDP. And this is where I personally feel that companies in this sector should have played a much more active role. Today rumours are playing spoilsport and companies are allowing them to grow stronger by not coming forward and showing transparency.

The onus lies on real estate bellwethers to come forward and share information with investors. If companies share information, possibly their shares will be punished in the short term, there will be eyebrows raised and some might say "they had to eat crow" or "see, I told you so". All this is fine compared to what is happening right now and mind you, shares are being punished even today for all the wrong reasons. Short-term pain is always better than long-term illness.

Nervous investors keep asking me: where are the markets headed? The answer is pretty evident - south. I express my views that the geographical implication for the region signifies heat, but the situation prevailing is of an inferno. A whopping Dh101 billion was peeled off the already dwindling market last week. Will this continue? Nobody knows. Can it be contained? Again nobody has a single shot remedy.

What investors should understand is that the UAE is having a crisis in the stock market with no significant proof of an economic crisis. The investors are clearly overreacting, taking cues from the West. The West has aggressively leveraged investments I feel to unrealistic proportions.

The UAE has the resources to protect its financial sector. It is not wise to overlook this fact and overreact to the global turmoil. The real estate and construction sectors could still face turbulence as they are influenced by foreign money to a greater extent. Other sectors can achieve growth at a reasonable pace. Investors here are starved for investment options. Once they exit the stock market the financial buffet really has nothing else to offer. Portfolios have come down more than 50 per cent in the past few months. It's really baffling that institutions and people are getting out of here.

The US has been gruelling with overspending on many issues and they are suffering because of that. What has the UAE done wrong? Each GCC economy has factored its growth based on oil prices around $40 to- $45 per barrel. Anything above that is considered a bonus. The economy has seen its glory days. The money has been made in the past few years and it is only normal for the markets to follow a trough. Welcome to the real world of economic cycles and that does not always mean a crash or even severe downturn. A slowdown may indeed be a good thing.

- The writer is Head of Al Dhafra Brokerage, Abu Dhabi