VZCZCXRO5702
RR RUEHDE RUEHDIR
DE RUEHAD #0950/01 2341303
ZNR UUUUU ZZH
R 211303Z AUG 08
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC 1364
RUEATRS/DEPT OF TREASURY WASHINGTON DC
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHLO/AMEMBASSY LONDON 1287

UNCLAS SECTION 01 OF 02 ABU DHABI 000950 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENGR ECON EFIN AE
SUBJECT: UAE MARKET FLUCTUATIONS NOT AS DIRE AS EARLY PRESS REPORTS 
SUGGEST 
 
¶1.  (SBU) Summary: UAE markets have shown some signs of volatility 
over the past few weeks, contributing factors including fears of a 
real estate slowdown and media reports citing the likelihood of the 
Central Bank tightening its lending policies to hedge against 
inflation and speculative behavior. Despite the press hype, local 
analysts are taking a calmer, more nuanced view of the situation. 
End summary. 
 
¶2.  (U) On August 14, UAE stock markets rebounded following what 
many media sources had coined a "plunge." While local and 
international press reported on panic selling with a sense of alarm, 
and described the week-long dip as indication of an ensuing bear 
market, financial analysts took a more nuanced view. After stocks, 
including Emaar Properties PJSC and mortgage lender Tamweel, spent 
the week in the red, the Dubai Financial Market General index (DFM) 
-- which had sunk by 8.93% over the past 7 consecutive sessions -- 
rose by 130.2 points (2.63%), to close at 5,074.9. The Abu Dhabi 
Securities Exchange (ADX), closing at 4,463.21, also witnessed 
gains, rising 70.66 points (1.61%) after 8 back-to-back losing 
sessions. 
 
¶3.  (SBU) The Dubai Financial Market and Abu Dhabi Securities 
Exchange both declined at the onset of the week of August 17, down 
.57% and .07% respectively. While leading shares like Emaar, 
Arabtec, and Dubai Islamic Bank closed up (.31%, .33%, and .13% 
respectively), Tamweel saw its stock continue to fall, down 4%, as 
rumors of corruption charges against its senior management emerged. 
Emirates NBD also declined, closing on the 17th down by 3%. On the 
ADX, Abu Dhabi Commercial Bank's shares rose by 4.2%, Abu Dhabi 
Islamic Bank by 1.6%, and Sharjah Islamic Bank by 1.3% while 
pressure from other sectors -- namely energy, insurance, and 
construction -- led the ADX to close the day slightly down. 
 
¶4.  (U) Contributing factors to the downturn in the markets included 
fears of a real estate slowdown, sparked by the publication of a 
Morgan Stanley Report, "Winners and Losers in MENA Property" that 
cites a correction in Dubai housing prices starting in 2010 and 
reports in local media indicating that the UAE Central Bank was 
likely to tighten lending for personal loans and small businesses to 
hedge against rising inflation and rein in speculative behavior in 
the real estate sector. However, many financial analysts took a more 
relaxed view, recognizing that a similar phenomenon occurred at the 
same time last year, and indicating that the downturn involved low 
volumes and thereby not as significant as the press was making it 
out to be. 
 
¶5.  (SBU) A Dubai-based Credit-Suisse research analyst told TREAS 
officer that while the markets had momentarily dipped, there was not 
"a significant cause for concern" since the same scenario had 
unfolded last year at this time. While he mentioned the effect that 
the Morgan Stanley report had had on investors' confidence, and 
concerns regarding a correction in the real estate sector in Dubai 
in the near term, he confided that the report was analytically weak 
and not a good product. He explained that there were other factors 
contributing to the decline. First, declining oil prices could be 
affecting the markets (although this is not a major concern as GCC 
countries' budgets account for much lower price/barrel in their 
annual budgets than what is actually being realized in terms of 
revenue). Second, global trends and volatility in international 
markets may be at play as a worldwide phenomenon of negative 
sentiment by investors in emerging markets is also reaching the GCC. 
(The flow of foreign investment funds to the UAE slowed last week, 
but sales have picked up in recent days.) A third factor, as 
referenced above, is a relative lack of liquidity in the UAE in the 
summer months as the market decreases on very low volumes. However, 
selling pressure did continue relatively unabated as investors, 
fearful of losses, started selling heavily those stocks that had 
recorded the highest profits. Hence, the research analyst continued, 
the sale of real estate and construction stocks like Arabtec (the 
highest gainer YTD) and Emaar (the largest real-estate developer in 
the MENA region) fell to its lowest levels since April 2005.  Thus, 
the 7-session-long downturn was sentiment-driven rather than fueled 
by a change in market fundamentals -- as was also the case last year 
at this time. 
 
¶6.  (SBU) The Deputy General Manager for Financial Services at the 
Commercial Bank of Dubai voiced similar views, explaining that while 
the Morgan Stanley report is partially to blame, the perception that 
the Central Bank will take active measures to curb inflation and 
clamp down on speculation in the real estate sector is also at work. 
He explained that while the global credit crunch is having a slight 
effect on UAE markets and domestic lending policies are factoring 
into lower liquidity levels (deposit rates are a bit low and the 
scale of lending has been high), it is not considered likely that 
the Central Bank will take significant action to tighten monetary 
policy in the near term. Finally, reports that local banks are 
suffering a credit crunch that will have sustained, long term 
effects on the Emirati economy are overly alarmist, he claimed. 
These reports fail to mention and take into account that most banks 
 
ABU DHABI 00000950  002 OF 002 
 
 
have at least some government ownership and would thereby have 
access to funds from the government if and when "push came to 
shove." 
 
¶7.  (SBU) An associate at The National Investor echoed these 
explanations, indicating that the market slowdown is a result of a 
combination of many investors being away for summer vacation, the 
onset of Ramadan next month, and a recent IPO (Drake and Scull) that 
was 100 times over subscribed and "sucked liquidity out of the 
market." Commenting on last week's downturn and indications of a 
potential Emirati "credit crunch," an associate in the Emerging 
Markets division at the Abu Dhabi Investment Authority (ADIA) added 
that "Dubai Inc." would be the most at risk if liquidity shortages 
ensued due to how leveraged balanced sheets are in Dubai. However, 
he does not believe that this is an issue in the near term and 
assumes that investors will "keep the tap on for quite some time." 
He doubts that the effects of a liquidity shortage will be felt this 
year although the fundamentals in certain industries are starting to 
show signs of overstretch. 
 
¶8.  (U) Comment: Following the downturn earlier in the month, UAE 
stocks have continued to show good valuations over the course of the 
week beginning August 17. The DFM and ADX have continued to rise, 
albeit amid low trading volumes. The analysts' matter-of-fact 
reviews seem to describe the fluctuation more accurately than the 
earlier press excitement. End comment. 
 
QUINN