Average correlation of Abu Dhabi and Dubai markets with the global markets remains positive during the years of a financial downturn.
The UAE equity markets have been affected by the stock market crash in the U.S. equity markets and by the burst of the domestic real estate bubble. A number of studies have found that individual GCC markets demonstrated strong cross effects from global markets.
Valuations in the Abu Dhabi and Dubai equity markets have not recovered since September 2008, notwithstanding some improvement in 2009.
The combined market capitalization losses in the Abu Dhabi and Dubai stock exchanges were $102 billion between September 1, 2008 and March 31, 2012, according to the IMF. The capitalization loss in the Dubai stock exchange was approximately $59 billion.
Volatility in the stock markets increased after September 2008. The average correlation of the Abu Dhabi and Dubai markets with the global markets turned positive in the period after September 2008, as compared to a negative correlation during the period between January 1, 2007 and September 9, 2008.
Market volatility increased after the crisis, but seemed to have settled down since the beginning of 2011.
At present, the near term perspective seems greemy with a traditionally slow summer season approaching. Shares at both UAE markets trade mixed, with no clear direction seen among the industry sectors. Trading volumes remained thin.
UAE Minister of Economy Sultan Bin Saeed Al-Mansouri said recently that he expects the UAE’s real GDP growth to decrease to 3 percent in 2012, down from 4.2 percent in 2011.
Index provider MSCI will decide in June whether or not it will upgrade the UAE to the status of an emerging market from the current level frontier market. But due to the very negative performance in May, traders on the DFM’s trading floor doubt that the UAE will see an upgrade.
The sluggish performance on the DFM since May is simply related to events globally and Greece and Euro zone troubles in particular. Most regional markets have been correlated with global equity markets and external factors.
