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Steady Improvement Predicted in Financial Confidence in the UAE

UAE : 22 February 2011

The levels of confidence in financial markets throughout the UAE will see a steady improvement due to a decline in the nation’s lending rates, according to an economist at a top bank.

Mark McFarland of the Emirates NBD stated that financial confidence levels will gradually improve as the gap currently seen between the LIBOR ( Landon Interbank Offered Rates) and the UAE EIBOR (Emirates Interbank Offered Rates) narrows. McFarland is the Emerging Markets Economist at the Emirates NBD.

He stated that an increase is expected in the rate of real GDP growth for the GCC in 2011.

The MENA markets are also expected to see improvement, at the same time that the crisis in Europe worsens as credit default conditions continue. McFarland stated that the developed areas of the world, which are experiencing huge gaps in production and output, as well as high levels of unemployment, increasing global inflation levels and climbing commodity prices, are dampening the recovery of the emerging markets across the globe. He noted that the markets in the MENA region are attractive to investors this year as growth rates move into the stages of recovery. McFarland noted in a statement to Khaleej Times that in order to continue the rise in capital flows in the MENA region incentives must be offered to bring capital back into the region, since monetary growth beyond Qatar’s borders have not yet recovered.

Growth within emerging areas has outstripped those seen in the developed markets and is expected to increase progressively over the coming years. McFarland stated that global divergence is likely to be a key investing goal for this year.

Trends of divergence can become an issue for those involved in making policies, which is apparent given the increasing bond yields. These trends also create the possibility for a renewal in volatile conditions in the foreign exchange market. That market is still under a hampered condition after five years of credit default swapping and cyclical issues like interest and exchange rates, which are driving the foreign exchanges.

McFarland commented that expansion is occurring in global GDP rates as trade improves across the world, with Brazil, India and China leading the drive towards growth and recovery. These conditions mean that emerging markets will offer the investors richer fundamentals throughout 2011.

Gary Dugan of Emirates NBD noted when talking to Khaleej Times that the price of oil is expected to remain high, which will be good for regional infrastructure spending. Dugan is the Acting General Manager for Private Banking and the Chief Investment Officer for Emirates NBD. He stated that oil prices should average around $76 to $88 per barrel this year.

He noted that local equities continue to be attractive, although investors are best to be patient when purchasing equities in emerging markets. There are challenges in the near-term and the price of equities is not as low as it once was.

Dugan advised that investors do buy into equities within developed markets across the globe, but using care and caution. In global terms, both the healthcare and technology sectors provide great opportunity, along with long lasting G7 bonds.

Investors should choose commodities selectively, according to Dugan. The expectation is that the price of commodities will continue rising, but that growth is required so that demand can catch up with the production estimates for 2011. The opportunities within the real estate market are also difficult to spot. Investors need to be selective there, as well as maintaining a diversified portfolio overall.

Dugan noted that gold continues to be a core asset for the management of wealth in 2011, especially now that many currencies across the globe are experiencing lower credibility. Building up gold for the preservation of wealth as opposed to doing it for tactical gain is being recommended strongly. Both gold and silver are under selling pressures in the metal market, although rising demand for metals in the industrial market is being met with a decent supply of nickel, lead, aluminum and zinc. All of these metals are expected to experience strong growth in supply throughout 2011, according to Dugan.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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