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The UAE’s stock market should brace for a period of consolidation rather than expansion, says a leading expert.
Stuart Cole, chief macroeconomist at Equiti Capital, said that as recession fears intensify, companies will be less interested in participating in fundraising activities such as IPOs until the global environment improves again. “The start of the year has been bright for UAE equities, but looking ahead looks more challenging, not just for the UAE but for global equities as well,” Stewart told Khaleej Times.
Cole has over 25 years experience in banking and foreign exchange. His previous roles include working at the Bank of England in the City of London as an Economist in the International Department.
Cole said OPEC+’s production cuts hadn’t really produced the effect the group had hoped to engineer, namely a material increase in global oil prices. “The initial rebound in prices after the announcement proved short-lived, reflecting both a faltering global economic recovery and concerns that major central banks will continue to raise interest rates further to keep inflation in check but to push the domestic economy into recession. For the price,” he added.
One reason behind the production cuts, according to Cole, is to take advantage of expected growth in oil demand from a recovery in economic activity in China, a key market for oil, after the zero-coronavirus policy ends. “However, this recovery – and the consequent pick-up in oil demand – has not materialized and has effectively removed the expected support for oil prices,” he added. Find yourself having to live with lower gas prices.
Cole believes that the worst inflationary pressures from Russia’s war on Ukraine are now behind us. “Global food and energy prices are now on a downward trajectory as the initial shock of the invasion has been overcome and the world economy has managed to adjust to its legacy of price increases,” he said.
According to Cole, the possibility of a global recession remains a threat for a number of reasons. First, the threat of a U.S. recession looks increasingly likely, despite the Fed’s continued hawkish tone. “The impact of the banking crisis and curtailment of credit to the real economy, combined with capital investment plans and declines in inventories, will lead to a real decline in aggregate consumption as excess savings eventually run out. The full impact of the 475 basis points of tightening has been delivered so far So far, it has not been fully felt, and a period of negative growth seems inevitable,” he said.
The latest German growth figures also painted a worrying scenario for output in the euro zone, while the European Central Bank made it clear that further rate hikes are needed to bring rates back under control if inflation is to be bought. It seems unlikely that the euro zone will pick up any slack left by the slowing US economy.
Third, the expected rebound in economic activity in China after abandoning its zero-coronavirus policy has not really happened, and the outlook for the future is not optimistic. “Key manufacturing, which used to be the main driver of global growth, is struggling and is not providing the backbone of global growth that it once did,” Cole said.
Disclaimer: The views expressed in this article do not constitute the views of Equiti Capital nor do they constitute investment advice. Readers are advised to conduct their own research before investing.
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