Rough Ride Continues For UAE ETF

July 21, 2014

After flying high, the United Arab Emirates stock market returns to Earth.

UAE Total Return

Chart courtesy of StockCharts.com

To say that the United Arab Emirates has been a hot market would be an understatement: The MSCI UAE Total Return USD Index returned more than 185 percent In the 17 months from January 2013 to June 2014.

Much of the furor seemed to center around speculation—and eventually the reality—that the world's pre-eminent index provider, MSCI, would upgrade the nascent country in its classification scheme from a frontier market to an emerging market.

Still, UAE's strong returns are the type of performance that breeds complacency—not just in markets but in UAE businesses as well. In this case, the culprit appears to be Arabtec, a Dubai construction company who has been at the center of a property market that's been even hotter than the stock market.

As property prices rose and the economy expanded, Arabtec grew rapidly. As Bloomberg reports, "Arabtec shares quadrupled during the CEO's 15 months in charge." Then things turned pear-shaped: The CEO departed and concerns mounted that the company would lose its critical state support. Arabtec shares collapsed overnight, created concerns of a more widespread problem and dragged down much of the market with it.

In April, iShares launched the iShares MSCI UAE Capped ETF (UAE) at what appears to have been the short-term peak in the UAE stock market. Since its launch, shares have plummeted more than 7 percent—including nearly 3 percent today.

Only time will tell if this is just another bump in the road or a longer-term turning point for UAE, but the lesson is clear: Be wary of past performance as a guide to future performance.

Find your next ETF

Reset All