Big funds sit out of UAE rally, wary on Dubai rescue
Analysts are of the viewpoint that institutional investors are worried about Dubai's debt rescue proposal and cautious regarding prospects longer term, and thus sitting out the recovery on UAE stock markets.
Foreign institutions are refraining from coming back to UAE exchanges due to vast issues like liquidity and market breadth. The exchanges are governed by property and banking stocks which are closely associated and which don't have defensive counters.
Furthermore, even the MSCI Emerging Markets Index does not have UAE listed in it. MSCIEF against which large institutional funds benchmark their performance, that indicates many fund managers cannot buy UAE stocks regardless of how attractive valuations are.
In 2009, the MSCI Emerging Market Index hiked over 78 pct and a respective gain of 10.2 percent and 15 percent was seen in the Dubai and Abu Dhabi indexes during the same period.
Matthew Wakeman, EFG-Hermes managing director for cash and equity-linked trading, said, "There is a lot of institutional cash sitting on the sidelines, waiting for a pull-back. This hasn't happened yet, so we will have to see if they decide to chase the market."
After Dubai specified that a sum of $9.5 billion would be spent by it to restructure its debt-laden Dubai World conglomerate, Stock markets in the UAE have rallied on retail interest.
The plan will allow bank lenders to have their money back in five to eight years and repay two key bonds.
The move was well supported by investors, with Dubai's index DFMGI hiking 6.3 pct to a 14-week high in the two trading days after last week's announcement. Meanwhile, a hike by 2 pct was seen in Abu Dhabi's benchmark ADI over the same period.
However, analysts feel that there needs to be more involvement from institutions if the rally is to be kept sustainable, with current trading largely the preserve of short-term retail traders.
More details on Dubai's debt plan such as how the cash-strapped emirate will raise the $3.8 billion, is being asked for by institutional buyers.
Furthermore, it was specified by the government that 100 percent principle repayment would be received by bank creditors with the help of a new debt with five and eight-year maturities. No details could be gathered on the interest rate.
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