Rush to grab UK pound
UAE residents take advantage of falling currency after Brexit vote
UAE residents have been cashing in on the weak pound – with some exchange offices saying they have virtually run out of sterling.
The British currency plunged in value after Thursday’s shock ‘leave’ result in a referendum on whether to stay in the European Union.
The outcome hit confidence in the UK, with the pound falling to a 30-year low. On Wednesday afternoon, the pound was trading at Dhs5.28, however by Friday it had plunged below Dhs5. It rallied slightly, with the rate back to Dhs5.02 last night.
While it might be gloom for the UK, people in the UAE see it as an opportunity.
7DAYS contacted 15 exchange centres across Abu Dhabi and Dubai - only one had pounds left in stock. The rest said they only had enough to cover advance orders.
Wire offices also reported brisk business as Brits sent money back home. Among them was British expat Alan Daft, 56, who works in aviation. He exchanged Dhs52,000 over the weekend.
“We expected the rate to drop if the vote was to opt out, so people, me included, have been waiting to send money home,” said Daft.
The GCC felt the brunt of Britain’s decision to leave the EU with stock prices plunging yesterday morning.
Traders rushed to get rid of stock, with real estate and banks dominating the sale in Dubai.
On the Dubai Financial Market (DFM) General Index, there were 320 million shares sold, twice the average number of the last 20 days.
The General Index was down by 3.3 per cent in total, the most since January, with Emaar Properties declining by 4.7 per cent.
The index later regained ground and closed 3.25 per cent down, at 3,258.17.
One expert told 7DAYS that an exchange rate of Dhs4.5 to the pound was a possibility.
“In the weeks leading up to the vote, the changing sentiment towards a leave vote saw the UK equity market weaken, with GCC investors fleeing towards safe havens like government debt,” said Brendan Dolan, regional director for the Middle East and Africa, Old Mutual International, part of Old Mutual Wealth, a provider of offshore investment solutions.
“It is almost inevitable that this sell-off will continue as we enter a period of extreme volatility and uncertainty.
“It is still too early to tell but we could see markets over-react in the shortterm, followed by a snap-back as investors digest the news.”
He urged investors to resist the temptation to sell when prices were already depressed.
“The only thing we can really say for certain is that we are entering a long period of uncertainty and that includes uncertainty of how it will effect the local economy,” he said.
“What we do know is that the UK’s EU membership referendum needs to be seen in the context of other macro events and risks such as the US presidential election and the future trajectory of US monetary policy.”
When asked about how much the Brexit will impact on confidence in local markets, he said: “It is still too early to tell at this stage but it’s certainly the main topic on everyone’s lips within the Dubai International Financial Centre (DIFC).
“However, with the dirham pegged to the dollar, GCCbased investors could see their currency strengthen in value with 4.5 dirhams per pound not inconceivable.”
A leading financial analyst from the deVere Group has warned of further implications for the GCC.
“For those with no connection to the UK it’s going to become a much more attractive prospect as a holiday destination as your dirham will go further than ever before,” said Andrew Prince.
“There are also benefits if you are looking at buying property as it’s going to cost five to eight per cent less than it did a week ago.”
However, if you are from the UK or have a connection, then it is a different story.
“It means you are far less likely to look at spending money to invest in the GCC and you are even less likely to come on holiday here,” he said.
In Abu Dhabu, shares opened 4.7 per cent down, but also recovered to close at 1.85 per cent lower than opening.
US Secretary of State John Kerry urged the UK and the EU to put aside differences and to be responsible about the separation for the sake of global market.
The Brexit vote also resulted in nine members of the UK Shadow Cabinet resign in protest at leader Jeremy Corbyn’s handling of the Remain campaign.
TURBULENT: The UK’s decision on EU membership has resulted in shockwaves