Sunday, Dec 01, 2013
DUBAI: It has been a strong year for the UAE markets. By the end of November, the Dubai benchmark stock index had increased by 82 per cent, becoming one of the best performing markets globally in 2013. The capital’s stock measure appreciated by 46 per cent during the same period.
The Dubai Financial Market started the year strongly by appreciating 16 per cent in the month of January and since then has rallied steadily, with trading volumes increasing as the year progressed. During late August and early September when the US announced that it was considering a military intervention in Syria, it witnessed more than 15 per cent decline, which it recovered in due course.
The average daily trading volumes on DFM for the year, until the end of last month, stood at $146 million compared to $48 million in 2012. To the surprise of most, volumes were at the highest during the summer months (August and September) when activity levels are low historically.
Overseas investors have driven the rally in UAE markets, specifically Dubai. Until before the Expo 2020 announcement last week, foreign institutional investors purchased UAE shares valued at $718.9 million. During the same period in 2012, their share was worth $202.9 million.
=Dubai’s market performance has been partly due to the rebound in the Dubai economy and the increase in business confidence levels during the past one to two years. While the real estate sector which is the bulwark of the economy is booming, the tourism sector has also kept growing. The increase in the Dubai stocks has been broad-based but is tilted towards the small cap names, some of which have more than doubled in value. Some of the bluechips such as Emaar Properties, Air Arabia and Emirates NBD are up between 68 per cent and 85 per cent (see table).
Large cap stocks
The Abu Dhabi market’s appreciation this year has been mainly because of the large cap stocks such as Etisalat and National bank of Abu Dhabi which have enjoyed comparatively modest increases.
Besides fundamentals, few catalysts worked in favour of UAE’s markets. These include MSCI’s decision to move UAE to emerging market category from its existing frontier category, improvement in corporate earnings, upgrade in terms of corporate ratings and news of a merger of the two markets in the works — all of which were topped by Dubai’s Expo 2020 win, which will have a long-term effect on almost all sectors. The regulator, Security and Commodities Authority’s initiatives on mutual funds and margin lending law also contributed to the positive sentiment of the markets.
This year’s rally this year looks justified, but when it comes to valuations, there could be fewer stocks that are attractive.
“I think the UAE markets, DFM in particular, deserved it [the big rally],” said Tariq Qaqish, head of asset Management at Al Mal Capital, Dubai. “They were lagging all markets around the world. If you look at five years since the peak of 2008, we are still below most of the markets — regional and international.”
“However, when it comes to valuations — we need to see better earnings and this will hopefully be going forward,” he said, adding some banks still look attractive trading about 10x forward P/E, which is cheaper than Qatar’s banks.
Qaqish, as an investor, would like to see more consolidation in the markets until we see another round of earnings.
Although UAE markets were anticipated to perform strongly this year based on these fundamentals, the exuberance amongst especially the retail investors has taken the markets ahead of the fundamentals, according to Shakeel Sarwar, head of asset management at Bahrain-based Securities and Investment Company(Sico).
Talal Ghandour, a co-head of equities for the Middle East and North Africa at Bank of America Merrill Lynch, said in a report released last week that the price performance is “pretty alarming”
On whether it is sustainable, he said: “Naturally, one would expect a market that has gone up 80 per cent or 100 per cent one year not to double the next year. Now, that in itself doesn’t mean the investment case is over. The fact is that we still see a number of stocks within the UAE which are undervalued despite the share price performance.”
Share prices of selected blue chip companies such as Emaar Properties and First Gulf Bank are still justifiable, according to Sarwar, but warns investors of the smaller cap stocks.
“We believe that a speculative bubble has developed in the small-mid cap space,” Sarwar said. “Therefore, we are cautious on the outlook of the UAE markets moving into 2014, as there can be a correction in the near term due to lack of catalysts.”
By Gaurav Ghose Financial Features Editor
Gulf News 2013. All rights reserved.
