Global financial markets have started the year on a downtrend with US stocks falling for the past four days. But in the past two it is the Dubai Financial Market that has slumped the most in the world with a decline of more than seven per cent. As January goes so goes the rest of the year is the old stock market adage.
The DFM was on a rocket to the moon up until last May-June when the index topped out and fell back in a classic 20 per cent correction and then rebounded to form a double-top. Since then the market has been moving downward, albeit with some spectacular reversals like the 13 per cent gain in one day last month.
Mini-boom
Local business has been through something of a mini-boom since late 2011 when the $25 billion Dubai World debt rescheduling was finally signed off. Confidence returned to the real estate sector along with higher house prices as the Arab Spring brought new residents with money to the city. Trade, transportation and tourism have blossomed.
However, the oil price crash and surging US dollar are a toxic combination for 2015. Dubai Government gets less that four per cent of its income directly from oil. But as the trading hub of the Oil States of the southern Gulf of Arabia oil and gas revenues are vital to its major business partners and their ability to spend.
The rise and rise of the US dollar is also pushing the city up the league table of expensive cities. The biggest spenders at the Dubai Shopping Festival last year were from Russia and visitor numbers are down sharply this year due to the collapse of the ruble. The euro at an eight-year low against the dollar is bad for dollar-linked Dubai’s main tourism market.
2015 budget
The Dubai Government has published its 2015 budget with a nine per cent rise in expenditure. However, most of the important local spending is by government-related entities that are effectively off this balance sheet. Will they be able to carry on spending at the frantic pace of 2014 with business slowing down in the city?
In 2009 Dubai’s economy came to a ’sudden stop’ in the Global Financial Crisis as the money to fund projects literally ran out and unpaid contractors were forced to send their staff home. It’s been easy enough to say that this would not happen again when oil was $70-80-a-barrel but now that WTI crude is under $50 nerves are beginning to look frayed.
Stock markets discount future scenarios and Dubai’s bourse just does not like what it is seeing at the moment.
