Abu Dhabi: The impact on the UAE and regional markets of Spain asking for a $125 billion (Dh459 billion) bailout from fellow Euro zone members to rescue its banking sector is going to be minimal, market analysts told Gulf News yesterday.
“The impact on the region’s markets would be neutral to positive. The UAE markets are currently trading close to historical lows, so the downside risks are minimal,” said Musa Haddad, Head Trader with National Bank of Abu Dhabi Asset Management.
He said there’s an opportunity for medium to long-term investors to accumulate stocks at current levels.
Short-term investors
“However, short-term investors are advised to stay on the sidelines because of low volatilty and low volume,” Haddad added.
Pradeep Unni, Senior Relationship Manager at Dubai-based Richcomm Global Services DMCC said the UAE is far more immune from a direct impact of Euro zone financial problems as the country’s banks are only moderately exposed to Europe.
Unni said the latest development concerning Spain may bring in some volatility, but this wasn’t a surprise as the contagion risk has been more or less discounted.“UAE’s aggregate banking system has adequate liquidity and capital buffers to withstand substantial shocks. Contrary to the other global leaders who sat watching the debt chaos getting from bad to worse, UAE authorities took measures to strengthen some of the weak links in the system. Banks have been recapitalised and the capital adequacy ratio of the banking system has strengthened to 21 per cent. Weaker financial institutions, including banks, have been merged with stronger institutions,” he added.
“Financial spillover to Dubai due to this aggravation in crisis in Europe is likely to minimal. Foreign liabilities of the banking system are about 19 per cent of total liabilities,” he added.
Anastasios Dalgiannakis, Head of Trading at Dubai-based Mubasher Financial Services, however, said with major events in Europe like Greece elections coming up, the positive sentiments will only bring short-term relief for the markets.
Spain’s aid request
On Saturday, Spain asked euro region governments for a bailout worth as much as 100 billion euros, becoming the biggest euro economy so far to seek international aid.
“The Spanish government declares its intention of seeking European financing for the recapitalisation of the Spanish banks that need it,” Spanish Economy Minister Luis de Guindos told reporters. A statement by euro region finance ministers said the loan amount will “cover estimated capital requirements with an additional safety margin.”
Just seven months after winning a landslide victory, Prime Minister Mariano Rajoy was forced to abandon his bid to recapitalise Spanish banks without recourse to external help as a deepening recession forced lenders to recognise spiralling losses. Saturday’s move means Spain has a firewall in case the Greek election on June 17 unleashes a fresh round of market turmoil.
Spanish officials faced increasing pressure to seek aid over the past week as European leaders race to put measures in place should next week’s Greek election increases the chances that the country will leave the euro.
Spanish borrowing costs have jumped since March and last week rose close to the euro-year high of 6.78 per cent. The yield on the country’s 10-year bond has since slipped amid optimism that Rajoy would seek a bailout and was at 6.17 per cent on Friday.