An upgrade of the UAE financial markets to emerging market status by the index compiler MSCI seems to be the only hope for recovery for the Dubai Financial Market (DFM). Rumours that this upgrade would occur helped the bourse climb out of its seven-year low on 28 November.
The DFM rose by 5 per cent, while the region’s largest developer, Emaar Properties, jumped 4.4 per cent and the DFM benchmark closed 1.8 per cent higher to reach 1,367 points.
But the DFM is still one of the worst performing bourses in the region, alongside the Bahrain and Oman stock exchanges. The number of shares traded on 28 November was 83 million, still lower than this year’s daily average of about 102 million.
Despite a pick-up in tourist arrivals and economic activity following the Arab uprising, Dubai has been hit hard by the Eurozone crisis. While there are signs that France and Germany will push forward with a new EU stability pact, there is no guarantee of rapid improvement.
Inevitably, further problems in Europe will be reflected in the DFM, which has traditionally been more exposed to the West.
Unlike the other Arab states, the UAE has not had to deal with uprisings or a change in leadership, but the effects of the regional uncertainty on the capital markets has damaged investor confidence.
Most investors are hoping that the MSCI will announce the UAE’s upgrade to emerging market status before the end of the year, just in time for them to start planning their international allocations for 2012. If that does not occur, it will be a further blow to already low sentiment among Dubai’s traders.