DUBAI: Fund managers will rotate dedicated money out of Dubai and into Abu Dhabi, Qatar and Egypt in search of a safe investment haven, as the Gulf emirate delayed billions of dollars of debt obligations this week.
International fund managers say they are considering reshuffling portfolios or even exiting Dubai after the government announced on Wednesday it would ask creditors at its flagship firms Dubai World and developer Nakheel to delay repayment of its debt.
Dubai-based fund managers expect international investors will reposition their portfolios after the opening of the local stock markets following the Eid holiday on Monday.
We ll see a regional flight to quality, so Abu Dhabi and Qatar will probably be the key beneficiaries, said Stuart Culverhouse, chief economist at Exotix in London.
A lot of international investors had exited from Dubai a while ago. Those not exposed to Dubai and the UAE may see current price weakness as an opportunity to buy cheap assets in the region where fundamentals are better than Nakheel and Dubai World. Others will look at the emerging market asset class and work out what lessons it has for elsewhere, he added.
Goldman Sachs said in a note on Friday it calculates Dubai World and its subsidiaries will be redeeming about $7.8 billion in the reminder of 2009 and 2010, and another $6.8 billion in 2011.
The most pressing redemption however was the $3.52 billion sukuk bond of Nakheel, due on Dec. 14.
In the meantime, most fund managers showed confidence Abu Dhabi would provide the necessary cash to bail out Dubai.
The question right now is is it just a Dubai issue or is the whole UAE in trouble, does Abu Dhabi still have enough cash to help Dubai, said London-based Amr Aboushaban, a sales manager in emerging markets equity at Merrill Lynch.
People will start trimming their positions in Dubai and dedicated money will rotate to Qatar, Saudi Arabia and Egypt. People might even just sell and sit on cash.
Fund managers in Dubai are eagerly waiting for clear government guidance and more information at the beginning of next week.
A fund manager of a global bank in Dubai, who did not want to be named, said it was too early to put up the red flag.
On Monday people are going to overreact and be dumping. We will reduce our position on Monday only, but increase again once supporting statements come out. All depends on the government statements, he said.
Fadi Al Saidi, head of equities at ING Investment Management Dubai, who manages a $50 million MENA fund, said: We have repositioned our portfolio, our highest exposure is now in Saudi Arabia and Qatar. But we are planning to ride this. A panicking market is not the best time to sell. But we are watching the news very closely. We have all the contingency in place to act.
In October, his fund s exposure to Dubai was around 9 percent, with holdings in the financial sector of 3 percent, transportation 1 percent and real estate and construction around 3 percent. He could not comment on the fund s individual corporate exposure.