Following an abysmal second quarter, Morgan Stanley downgraded the Dubai Financial Market to underweight.
The distinguished financial services firm substantially lowered its DFM traded value forecasts by 39% for 2008 and 2009, with the average traded value of the market approaching the bank’s forecasted ‘bear scenario’ of $400 million.
In the report entitled Dubai Financial Market: Consensus too optimistic given poor trading, Tammam El Barbir, a Morgan Stanley banking analyst for the MENA Region, states that “the market remains too optimistic, in our view, with earnings forecasts implying 65% year on year growth in trading values, in contrast to our forecast of 17%. Bearing in mind the special circumstances that drove the strong Q4 2007 figures we see further downside risk to DFM’s price.”
DFM shares have endured a dismal 2008, plunging with relative consistency from a year-best of $1.81 in early January. Subsequently, Morgan Stanley has reduced its target price by more that a third, from $1.72 to $1.12. As indicated by El Barbir’s report, further reasons for pessimism include the DFM’s lower profit growth, no cash or investment related income, and lower daily average traded value forecasts.
However, despite a rough 2008 and the consequent downgrading, the Dubai Financial Market should remain optimistic, according to El Barbir. He suggests that the rest of 2008 could take on a different tone, provided that there are more high-profile listings, volumes pick up, and new products are introduced.
“Investors may start regaining interest in Dubai,” El Barbir adds. “We believe 2009 could be enough time to see some positive triggers materialize.”
