Saturday, Oct 08, 2016

Dubai: UAE stock market investors must accumulate select scrips before the markets see a turnaround in sentiment in the later part of 2017, market experts said.

The Dubai Financial Market General Index (DFMGI), which is part of the emerging markets, has gained more than 4 per cent since the start of the year. Even though the market outperformed regional peers, it has lagged in performance compared to the other emerging markets such as India’s, which has gained 7.16 per cent since January 2016. This also compares with more than 13 per cent gains on the MSCI Emerging Market Index.

The stable oil prices, which for example Goldman expects to be at $55 (Dh202) a barrel, along with projects in the run-up to Dubai Expo 2020 could help boost sentiment, which has been subdued of late.

“If the status quo continues, and we only get an improvement in oil prices and because of the Expo 2020, the UAE and Qatar economies should be positive in 2017 compared to 2016. For now, we don’t try to be pessimistic,” Mohammad Ali Yasin, managing director at National Bank of Abu Dhabi Securities, told Gulf News over the phone.

The aftermath of the deal struck in Algeria to cut production has seen oil prices gain more than 15 per cent to settle around $52 per barrel. The PIRA Energy Group, an industry forecaster, expects production cuts to help move crude prices toward a target of $50-$60 per barrel. Industry experts feel that majority of the Expo 2020 contracts will be awarded in 2017, with all infrastructure work expected to be completed by October 2019.

“There are two major factors for us in the UAE, an improvement in the average oil price would be positive for us — even if it is closer to $60 per barrel. That could be a good position for the government for not to withdraw much of itsinvestment. The second factor which is positive for us is that the Expo 2020 commitments have not started yet, but they’ll have to start it at the end of 2017. So through the commitments there would be an urgency to award these projects,” Yasin said.

“That is where I believe that from the second half of 2017, we could see a turnaround in sentiment, after the continuous drop we saw from the start of 2014. Oil prices may be closer to $60 in 2017, and it’s better for the UAE, and it would be better than that is was last year,” he added.

Cashing in

To cash in on this opportunity, investors are advised to get into stocks with reasonable valuations and high dividend yields.

“Investors should get into stocks with lower price-to-earnings (PE) [ratios] and higher dividend distribution to position for the next six months,” Yasin said.

The ADX is trading at a P/E ration of 11, while Dubai is trading at 12 times P/E ratio. Qatar is on the higher side, at 15 times P/E, but this is at a discount to the EM index.

“I believe that we are fairly priced especially on the blue chips. Investors should avoid speculative stocks unless they have a high risk appetite. Banks are trading below 10 P/E, along with real estate companies,” Yasin added.

Soledad Lopez, emerging market equity strategist at UBS Wealth Management concurred.

“Overall, we believe there are plenty opportunities in these countries. The UAE and Qatar also provide exposure to high dividend-yielding companies,” Lopez said.

Financials constitute 60 per cent of the index in Qatar and 30 per cent in the UAE. Banks, in particular, on average feature strong dividend-payout ratios.

Dividend yields of 4.2 per cent in Qatar and 3.8 per cent in the UAE compare favourably with MSCI Emerging Markets or MSCI World, which are predicted to yield around 2.6 per cent over the next 12 months based on August consensus estimates, according to UBS. The UAE ranks top-most in terms of dividend on the MSCI Emerging Markets Index.

Sideways

But for now the sideways movement would continue in stocks as investors are in a risk-off mode.

“While we don’t get negative surprises, we should be able to maintain the market’s current movement in the range of 3,200-3,600 on the DFM, and 4,200-4,700 on the ADX,” said Yasin.

Even the volumes are not impressive at the moment.

“The third-quarter results are not expected to [be] higher than the first half of the year. If we look around, uncertainty is high for investments. And this is translating into low volumes at the moment,” Yasin said.

Traded values are 28 per cent less than the same period last year.

By Siddesh Suresh Mayenkar Senior Reporter

Gulf News 2016. All rights reserved.