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.