“Business was getting too slow, and at some point you have to decide where time would be spent in a more valuable way,” said Rantisi, who quit his job as the director of brokerage at Rasmala Investment Bank Ltd. in Dubai in June to help start a deli named 1762. The 34-year-old now works a few hundred meters from where he used to fulfill share orders.
Three years after the Dubai bubble burst, its financial industry is still in decline and shows little sign of recovery. While the emirate successfully restructured debt and invested in transport and tourism, 41 of the 98 local brokerages active in 2008 suspended operations.
Banks including Credit Suisse Group AG (CSGN) and Nomura Holdings Inc. (8604) have trimmed their equities or equity research devisions as trading volume on the Dubai Financial Market plunged 77 percent after 2009. Al Futtaim HC Securities LLC, a Dubai-based broker ranked first by value traded in July according to the Dubai Financial Market website, said Jan. 4 it would end operations in the U.A.E. The number of employees in the Dubai International Financial Centre slipped to 11,331 in July of last year from 11,436 in 2009.
The crash followed real-estate speculation as government and state-owned companies amassed about $110 billion in debt. Dubai is home to the world’s tallest skyscraper and palm-tree shaped islands off its coast. By early 2008, the benchmark DFM General Index (DFMGI) had risen almost six-fold in five years.
The market value of shares in the U.A.E. is now $97 billion, less than half the $206 billion at the end of 2007, according to data compiled by Bloomberg. Foreign investors have reduced holdings of Dubai stocks amid Europe’s debt crisis and political uprisings that ousted leaders in Egypt and Libya. They bought shares worth 2.8 billion dirhams ($762 million) in the third quarter, down 83 percent from the same period in 2009, according to the Dubai Financial Market website.
Dubai’s benchmark index slumped 17 percent in 2011 compared with a 20 percent drop in the MSCI Emerging Markets Index. (MXEF) Abu Dhabi’s measure retreated 12 percent. The value of shares traded in Dubai tumbled to about $5 million on Nov. 16, the lowest since 2004. The DFM General Index slipped 0.5 percent to 1,327.54 at the 2 p.m. close today, down 84 percent from a high in 2005.
Drop in Volume
Trading volume in Dubai plummeted to a six-year low even after state-owned holding company Dubai World reached a restructuring agreement with creditors in March. The company roiled global financial markets in 2009 when it sought to halt repayments on about $25 billion of debt.
The U.A.E. will have to wait until at least June to be upgraded to emerging market from frontier status in MSCI Inc. (MSCI) indexes, which determine the stocks that tracking funds buy.
With little to trade, ex-stockbrokers are running restaurants, nightclubs and luxury hotels, waiting for a catalyst to reignite markets. Vyas Jayabhanu, the manager of Al Dhafra Financial Broker LLC, has spent the past year developing Boutique 7 Hotel and Suites, a four-star Dubai hotel complete with a bar, a café and soon a nightclub.
Business has been good, Jayabhanu, 35, said in an interview over coffee at the hotel’s Garden of Eden café. “If you’re bankrupt, you drink more,” he said. “It’s a win-win situation.” The café sports tables made of wood imported from Scotland, surrounded by trees and bushes, and offers shisha, the water-pipe smoked in the Middle East.
“During the boom you saw everyone investing more to capture market share,” said Rantisi of 1762, a reference to the year the Earl of Sandwich supposedly asked for his meat between two pieces of bread so he could stay at the gambling table. “It was overdone, and that was the first signal that the cycle was coming to an end,” he said. “Today is the opposite. People are getting out of the business or moving to other investments as the market dries up.”
Dubai, which has less than 10 percent of the U.A.E.’s oil reserves, set up the DIFC, a tax-free business park, in 2004 to attract global banks, asset managers and insurers to help diversify its economy. Banks such as Goldman Sachs Group Inc. (GS) and HSBC Holdings Plc. (HSBA) added staff in the region as rising oil wealth increased demand for financial advice.
Expanded Too Quickly
Dubai expanded too quickly, said Akram Annous, former Middle East and North Africa strategist at Al Mal Capital PSC who left the company in November. “For now, I’m working on enhancing my personal brand,” the 33-year-old former banker said. “Maybe I’ll bring a franchise to Dubai, such as a shisha- based bowling alley, a fusion enterprise of some sort. Or maybe I’ll start a twitter feed.”
Rantisi’s former company, Rasmala, which has a research venture with Royal Bank of Scotland Group Plc, has moved away from retail brokerage services, as have HSBC and Shuaa Capital PSC. (SHUAA) Shuaa, the U.A.E.’s largest investment bank, scaled back its research department to two employees as it cut costs, two bankers familiar with the matter said Jan. 10.
“We are simply not making any money through brokerage,” said Jayabhanu of Al Dhafra. “There’s a vicious fight to make use of small volume. In tourism, there’s something for everybody,” said the broker, who spends much of his time on the hotel project. “Encouraging clients to trade in this market condition is not ethical.”
Banks Also Suffer
Regional lenders have also suffered after the global credit crisis weakened lending, crimped investment banking and spurred loan defaults. Fees earned by banks in the region fell 42 percent to $320 million in the first nine months of 2011 from $551 million during the same period the year earlier, according to New York-based research firm Freeman & Co.
Bond markets have recovered, with the average yield on debt in the U.A.E. slumping about 200 basis points since the end of 2009 to 5.36 percent on Jan. 10, according to the HSBC/Nasdaq Dubai UAE US Dollar Bond Index.
Al Dhafra still operates with four brokers in Abu Dhabi, the U.A.E. capital that led the $20 billion bailout of Dubai, Jayabhanu said. The brokerage was ranked 30th by value traded in December on the Dubai Financial Market. (DFM)
“One thing that could boost volumes would be the inclusion of the U.A.E. in the MSCI Emerging Markets Index,” Georges Elhedery, head of global markets for the Middle East and North Africa at HSBC, said by e-mail Jan. 4. “Inclusion would have the effect of allowing international Emerging Markets funds to access this important market.”
MSCI indexes are tracked by funds that oversee about $3 trillion in assets, so getting promoted to emerging market from frontier can increase investment. MSCI cited investor’s questions about the effectiveness of a new settlement system as a reason why it kept the country under review.
The U.A.E. and Qatar, which is also up for review from frontier market status in June, “deserve an upgrade on the basis of their financial strength and economic and political stability,” Paul Cooper, the Dubai-based managing director at Sarasin-Alpen & Partners Ltd., which oversees more than $500 million in the Middle East, said by e-mail Dec. 21. “The difficult global economic environment could work in the region’s favor as its financial strength could justify an overweight stance here.”
The Securities & Commodities Authority, the U.A.E. market regulator, plans to issue rules on liquidity providers, short selling and security lending and borrowing in the first half, Chief Executive Officer Abdullah Al Turaifi said in November.
“The smart brokers who manage to stick around will capitalize big time when volumes come back,” Rantisi said. Meanwhile, the former broker and his partners plan to open a branch of 1762 as soon as this month in Jebel Ali, another Dubai business district.
“We haven’t hit a wall in sales figures yet,” Rantisi said. “And business has exceeded expectations.”