Volatile stocks encourage market shift

Dubai: The volatility of the region's stocks is encouraging Gulf investors to seek new opportunities in emerging markets, according to officials, although not in a big way yet.

The flow of capital from the Gulf "may not be a widespread trend although there might be some outward movement," said Faisal Bin Juma Belhoul, founder and managing partner of Ithmar Capital.

"I don't see it as a trend, but more of a globally balanced portfolio."

About $5 billion (Dh18.3 billion) worth of private equity funds is under management in the GCC.

The Gulf's liquidity received a tremendous boost from the September 11 attacks that prompted many Arab investors to withdraw capital from the US and European markets.

Estimates of repatriated capital range from $800 billion to $1 trillion, boosting the domestic liquidity in local economies.

However, a lack of adequate investment vehicles prompted some countries to liberalise regulations. Dubai took the first step in May 2002 by opening up the property market to foreign ownership, creating a huge opportunity for investors.

Dubai became a hot destination for investment, resulting in massive construction.

The inflow of such huge capital also impacted the region's burgeoning capital markets, which experienced severe capital movements. However, as predicted, stocks began to plunge last March, wiping out billions of dollars of market value.

Investors lost more than Dh11 billion in just one week this month on the UAE's capital market, the indices of which are still heading south, a fact that is helping private equity fund managers to cash in as equity prices offer bargains.

"This was expected and is a good thing for the market," he said, echoing many analysts who last year predicted that the overheated market was goin to crash.

"The market moved from the level of high valuation to a more realistic one and that makes it more attractive for investors."

Ithmar Capital is managing two funds worth a total of $320 million.

"In the coming years we want to have $1 billion worth of capital under our management."

Belhoul said private equity funds will become more popular in the coming years if managed efficiently.