Analysis: Abu Dhabi and Dubai stock markets bounce back in February

Some signs of global recovery following a difficult opening to the year.

Last month the Abu Dhabi and Dubai markets were quite strong and gave positive returns as the performance was underpinned by a global market recovery after a difficult January.

Economic data improved and markets adjusted to expectations of further quantitative easing tapering. Slowing GDP growth in China has become a focal point as the Communist Party leadership stresses the need to move to a more demand-driven economy as opposed to the current export-and-infrastructure-driven model.

The euro zone continues to gradually recover, helped by policy support that mitigates tail risks. Cyclical momentum in Japan will continue to rely heavily on implementation of aggressive fiscal and monetary policies.

Muted global inflation is likely to persist over the medium term, allowing continuation of accommodative monetary policies in developed markets.

Emerging-market equities have underperformed developed market equities recently, driven by slowing growth rates against the latter’s improving fundamentals. Emerging market trades at attractive valuations relative to both developed markets and historical levels, providing a favourable entry point for long-term investors. Sustained outperformance depends on improvement in the earnings cycle and manufacturing data.

The UAE banking sector was positively influenced by a pick-up in economic growth and a recovery in real estate prices. Fourth quarter numbers were in line with market expectations and many banks increased dividend payouts. Aggregate profitability of listed banks increased by 22 per cent year-on-year. Smaller banks performed better than large-cap banks.

Commercial Bank of Dubai was the best-performing stock, followed by Abu Dhabi Islamic Bank, Emirates NBD, First Gulf Bank and AbuDhabi Commercial Bank.

The UAE real estate and construction sector continued to outperform the wider market, supported by strong fourth quarter numbers from Emaar Properties, Union Properties, Aldar and Drake & Scull. Real estate prices and rentals in Dubai continued appreciating in the first two months of the year, supported by the strong performance of the tourism and hospitality sector and a number of new project launches.

Emaar announced strong quarterly numbers supported by its hospitality and rental portfolios, while Aldar’s numbers were boosted by unit deliveries in the Gate Towers project. Shares of Emaar and Union Properties were up by 14 per cent and 33 per cent respectively.

In Abu Dhabi, shares of Aldar continued performing well on the back of strong quarterly numbers and the Abu Dhabi government’s decision to create freehold areas in the emirate, which will allow foreigners to receive title deeds for the properties they own.

In the construction segment, Arabtec continued outperforming the market last month and surprised the market with a massive project announcement of Dh22.44 billion. Drake & Scull announced a number of new projects and also reported better-than-expected quarterly numbers, boosting the share price by 15 per cent in February.

In the telecoms sector, du announced its fourth-quarter numbers and dividend for the second half of last year, which were better than expected. Etisalat rose 4.7 per cent in February.

In the oil and gas sector, Dana Gas received US$38 million worth of applications for conversion of sukuk to equity. We foresee more sukuk to be converted into shares during he coming months, which will help to relieve the company’s debt burden. The stock was down 7.5 per cent last month.

In the ports sector, DP World announced that last year’s gross container volume was up 0.7 per cent on a like-for-like basis. The second half delivered a stronger performance, with volumes growing 3.6 per cent year-on-year. The stock was unchanged last month.

Shares of the Dubai Financial Market gained 27.6 per cent last month, outperforming the overall index.

The average daily traded value on the exchange was $567m during the month, recording a 14.4 per cent month-on-month increase.

The Securities and Commodities Authority announced that the UAE’s stock exchanges were moving closer to setting up a platform for secondary listings of private joint stock companies from the wider Middle East region.

It is noteworthy that some international investors are becoming concerned at the recent rise in UAE equities and the recall of UAE, Saudi and Bahraini ambassadors from Qatar. However, the rise in UAE equities needs to be placed in context as it comes from a very low base in an economy that is predicted to grow at 4.5 per cent this year.

Saleem Khokhar is the head of equities at National Bank of Abu Dhabi

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