The UAE’s stock and bond markets are largely immune from the fallout of looming interest rate rises in the United States, fund managers said on Thursday.
The Federal Reserve on Wednesday stopped its monthly bond purchasing programme – also known as quantitative easing – which has been used to support the economy after the global financial crisis in 2008.
Trillions of dollars have been pumped into the financial system through the buying of assets including US Treasuries, and much of that excess liquidity has found its way to frontier and emerging markets.
Dubai and Abu Dhabi shares are 34 per cent and 13.3 per cent higher so far this year, respectively.
The Fed is now focused on the need to raise rates from their near-zero levels amid a fragile economic recovery. The impact of the shift in monetary policy is expected to include investors shying away from riskier assets.
“I’m not too scared even if we’re in an emerging-market environment,” said Sebastien Henin, the head of asset management at The National Investor, an Abu Dhabi-based investment bank. “Yes, there’s been a lot of hot money invested in asset classes such as frontier- and emerging-market fixed income – but the situation is different here. We’ve seen very little inflow in this part of the world.”
In the absence of heavy foreign direct investment into UAE equity and bond markets, assets should be more or less immune to the conclusion of the QE programme, Mr Henin said.
“If we had a lot of foreign hot money in our markets – which is not the case – then it would have been a game changer,” Mr Henin added.
Announcing the decision made at its October policy meeting, the Fed said: “The committee judges that there has been a substantial improvement in the outlook for the labour market since the inception of its current asset purchase programme. Moreover, the committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the committee decided to conclude its asset purchase programme this month.”
Over a period of time, the Fed has gradually reduced its purchases from a peak of $85 billion a month to $15bn a month.
But other fund managers looked at the broader picture that includes falling oil prices and government spending levels.
“The fears are not local but international,” said Marwan Shurrab, a fund manager and the head of trading at Vision Investments and Holdings in Dubai. “Worries are simmering that the squeeze will cause things like expenditure to slow down and affect the prospects of recovery for the global market, and that will affect commodities and put pressure on GCC countries. Most of the companies listed on UAE equity markets are companies that benefit from the growth of real estate, construction and government spending, so if for any reason there’s fears on government spending and projects the appetite on risky assets will be affected.”
Global markets were mixed in reaction to the Fed’s decision. Japan’s Nikkei 225 closed up 0.6 per cent to 15,658, Hong Kong’s Hang Seng slipped 0.4 per cent to 23.702.04 points and Europe was mostly down, with the UK FTSE 100 Index slipping 0.5 per cent to 6,416.64 points in early afternoon trading London time.
In the UAE, the Dubai Financial Market General Index was down 1.6 per cent, mostly in reaction to sluggish quarterly earnings results from Dubai developer Emaar Properties.
On Wednesday, the dollar was up against other currencies and gold was lower.
“Those reactions were good for GCC economies because the strength of the dollar means higher revenues that will compensate the recent drop in oil prices, especially with a client base in Europe and Asia,” said Mohammed Ali Yasin, the managing director at NBAD’s brokerage arm.
halsayegh@thenational.ae
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