ABU DHABI INVESTORS CIRCUMSPECT ON FINANCIAL CRISES

C O N F I D E N T I A L ABU DHABI 001141 SIPDIS DEPARTMENT FOR NEA/FO, NEA/ARP (BMASILKO) AND EEB E.O. 12958: DECL: 09/22/2018 TAGS: EFIN ECON EINV PGOV AE SUBJECT: ABU DHABI INVESTORS CIRCUMSPECT ON FINANCIAL CRISES REFS: ABU DHABI 1079 ABU DHABI 950 Classified by Ambassador Richard G. Olson for reasons 1.4 (b,d). ¶1. (C) Summary. The continued decline of local and international stock markets, combined with tight liquidity, has Abu Dhabi investors concerned but not panicked. Most of the large private investors have balanced portfolios whose declines have been less dramatic. However, smaller investors are stunned by the freefall of the Abu Dhabi market. Despite the losses, rapid development can be expected to continue provided the overall regional context is stable enough to allow for economic expansion. End Summary. ¶2. (C) Oil-rich and investment-savvy Abu Dhabi has not been immune to the impact of international market declines and tight liquidity. However, financial officials opine that those large and institutional investors with significant overseas portfolios have the knowledge, diversification and patience to ride out the storm. A Citi Private Bank vice president told Econoff on October 7 that his ultra-high net worth clients (over $500 million) in Abu Dhabi were seeing their portfolios decline, but losses were less than those in the broader markets. Other religiously conservative Abu Dhabi investors have carefully invested in prime local and international real estate, insulating themselves from the worst of the market declines. While knowledgeable investors remain circumspect, the question everyone is asking is, "Where's the bottom?" ¶3. (C) The international downturn has impacted local markets and small investors. The Abu Dhabi Securities Exchange (ADX) has fallen 18 percent in the last week to settle at 3176.96 on October 8. While down significantly from its high of 5000 in July, the ADX has not fallen as precipitously as others in the region, including Dubai, as a result of the sub-prime fallout. ADX Deputy CEO Rashed Al-Baloushi told EconOff on October 8 that the ADX will not stabilize until foreign institutional investors complete their withdrawal from the market. In three weeks, Al-Baloushi said the value of foreign holdings fell from 10 to 6 percent as foreign institutional investors respond to liquidity shortages. Until that six percent is gone, the ADX is likely to continue its steep declines. ¶4. (C) Known for its volatility and speculation, ADX losses have the greatest impact on small Abu Dhabi investors. Al-Baloushi said these immature investors are panicked because they do not understand the markets and simply buy and sell when they hear rumors about the activities of a more prominent Emirati. While ADX has tried to conduct training for small investors, Al-Baloushi opined that these investors will only learn through experience. ¶5. (C) Local and international market volatility has delayed the listing of several Abu Dhabi-based companies in 2008, particularly those in real estate. However, most observers believe that strong economic growth and high demand for real estate will continue in Abu Dhabi for the next 3-5 years. Senior officials remain optimistic about the future, and large state-funded entities like Mubadala and Masdar continue to press ahead with long-term plans to turn Abu Dhabi into a world economic force. ¶6. (C) Comment. While private sector growth may decline as a result of tight liquidity and weak investor confidence, there is little indication the world economic crisis will ruin Abu Dhabi's ambitious plans. Oil prices would have to return to less than $50/barrel before core development projects would be scaled back. The real threat, say financial observers, is political instability in the region, e.g. Iran. End Comment.