Debt deal likely to lift markets

Dubai World's sealing of an agreement with its bank creditors should have a positive impact on local markets. Jeff Topping / The National Hadeel al Sayegh Last Updated: September 11. 2010 8:15PM UAE / September 11. 2010 4:15PM GMT Dubai World’s move into the black as it seals an agreement with its bank creditors is likely to boost local stock markets. Nearly 10 months after the company announced last November 25 it was seeking to delay debt payments, the markets began to see signs of a recovery leading up to the news. “It’s positive and should be market-moving,” said Yazan Abdeen, a senior fund manager at ING Investment Management in Dubai. “The stock markets needed a catalyst to readjust … risk.”  The Abu Dhabi Securities Exchange (ADX) General Index added almost 1 per cent to close a shortened trading week at 2,531.72, while the Dubai Financial Market (DFM) General Index added 3.5 per cent, closing at 1,592.24. That rise was Dubai’s biggest weekly gain since July 11 and the first time the index had substantially outperformed the ADX index in the period. Traded value for the week almost tripled the monthly average for both markets. The DFM and ADX were closed on Wednesday for the start of the Eid holiday and will reopen tomorrow. The state-owned Dubai World required two thirds acceptance by local and international banks to begin the largest restructuring of debt, worth US$24.9 billion, in the Gulf. The debt is to be reconfigured into two loans, one maturing in five years and the other in eight. The Dubai index has fallen nearly 23 per cent since November last year, while the Abu Dhabi index has fallen 13 per cent. The UAE indexes have significantly underperformed US and emerging markets in the same period, while the Dow Jones Industrial Average has remained essentially flat. The MSCI Emerging Markets Index has added 3.5 per cent since November.   Recent gains in the local stock markets appear to be more than just a weekly rally. Indicators suggest this increase may be the start of a trend upwards, said Ali Salaam, the director of MENA equity sales at Credit Suisse in Dubai. Analysts said the Dubai World agreement was likely to revive confidence in local companies and bring foreign investors back to the emirate. At the moment, foreigners have a 30 per cent stake in companies listed in Dubai and Abu Dhabi. The surge in local stock prices was supported by bullish sentiment across international markets and strong data on unemployment in the US that helped ease fears of a faltering global economy.  “This was one of the main reasons why we saw the Arab markets move strongly on the last days before the close of the trading week,”said Marwan Shurrab, the vice president and chief trader at Gulfmena Alternative Investments in Dubai. “We are highly correlated with the international markets.” Brokers say it will be difficult to assess this week’s performance as trading activity has been largely speculative recently, with institutional investors remaining on the sidelines. “Buying activity as we get closer to the third quarter is still largely retail-driven, which is more volatile, speculative and more difficult to assess,” Mr Shurrab said. Volume increased last week, rebounding from all-time lows. “It’s not [because of] institutional investors, who are holding due to fundamental reasons or building positions at current levels,” he said. Determining the future direction of the local markets was difficult because of speculation, which was ultimately affected by movements in international markets and commodity prices, Mr Shurrab said. In the US, the S&P 500 Index rose 0.5 per cent to 1,109.55 for the week, adding to the 3.8 per cent gain for the five days ending September 3, on the US jobs data. The 4.3 per cent surge over those two weeks was the biggest since June 18. The Dow gained 14.84 points on Friday, or 0.1 per cent, to close at 10,462.77. Oil rose the most in six weeks on Friday to $76.45 a barrel on the New York Mercantile Exchange after a pipeline that carries Canadian crude to refineries in the US Midwest was closed because of a leak.  “Global markets historically have tended to underperform in the months of September and early October. This year has been an interesting situation,” Mr Salaam said. “Going into September, the market seems to have priced in a lot of the negative news.” halsayegh@thenational.ae From The National Newspaper