Analysis: UAE bourses charging upwards

Strong performances ahead of inclusion on MSCI Emerging Markers Index next month.

Market sentiment remains quite bullish as economic growth continues to accelerate and the UAE cements its position at the top of the global equity market leader board.

UAE bourses were strong last month. Abu Dhabi's index gained 1.8 per cent and Dubai's benchmark measure rose 11.9 per cent. And as the UAE becomes a part of the MSCI Emerging Market index on June 2, this is likely to drive performance in the short term.

There were two new IPOs – Emirates Reit and Marka – both of which were heavily oversubscribed, indicating strong investor appetite for new issues. Emirates Reit started trading on Nasdaq Dubai on April 8. Most companies reported better-than-expected first-quarter earnings, which should continue to underpin the market despite recent gains. However, one can expect near-term volatility as investors look to book profits ahead of the summer holidays.

The real estate and construction sector continued to outperform the wider market, supported by strong quarterly numbers from Emaar and Nakheel and improving sector fundamentals. First quarter earnings for Emaar were supported by continued improvement in hospitality and rental revenues, with the company registering sales of Dh5.92 billion, an increase of 94 per cent year-on-year

Last month Emaar's chairman, Mohamed Alabbar, said that the company would look to quadruple profits by 2018 on expansion of both overseas and UAE business segments. In a move towards greater transparency, Emaar issued guidance on net profit for this year at a record of Dh3.07bn. It expects steady year-on-year growth in net profit, which is set to reach Dh10.1bn in 2018. Shares of Emaar and Union Properties were up by 9.6 per cent and 9 per cent, respectively.

Aldar launched a number of new projects with a combined value of Dh5bn at Cityscape Abu Dhabi. Its shares rose 16.5 per cent last month.

In the construction segment, Arabtec shares registered an increase of 49 per cent last month to give a year-to-date rise of 212 per cent. Arabtec continues to be supported by an increased order backlog, which now stands at more than Dh200bn. It announced bonus shares of 40 per cent.

Reported first quarter earnings for most banks were above consensus estimates. Profitability was driven by strong economic growth, a decline in provisioning and growth in fee income.

Emirates NBD was last month's best-performing stock with its share price increasing by 15.6 per cent, followed by Abu Dhabi Commercial Bank at 5.6 per cent and First Gulf Bank at 5.2 per cent. After strong gains in the first quarter, shares of Abu Dhabi Islamic Bank fell by 9.5 per cent and Union National Bank declined by 0.7 per cent.

Etisalat and du underperformed in the telecoms sector, registering negative year-to-date share price performance of minus 2 per cent and minus 11 per cent, respectively. Etisalat did, however, report better-than-expected first-quarter earnings, which were supported by improved domestic performance.

DP World announced excellent first quarter throughput numbers. Gross container volume and consolidated volume grew by 10.5 per cent and 12.8 per cent year-on-year respectively on a like-for-like basis. Jebel Ali port experienced a very strong quarter, handling 3.6 million container units, representing a growth of 17.5 per cent. The strong performance was mainly driven by increased traffic from the Asia-Pacific, Indian and domestic regions.

Dubai Financial Market, the only listed stock market operator in the Arab world, reported strong first-quarter results. Net income was up 200 per cent quarter-on-quarter and 696 per cent year-on-year, driven mainly by an increase in fee and commission income and a tight cost structure.

Putting the UAE and surrounding region’s performances in a global perspective highlights their underlying strengths. For example, the European Central Bank’s forecast for European recovery remains weak and further measures, including quantitative easing, could be used to stimulate European economies.

Growth has been recovering in the United States, but the Federal Reserve has indicated that monetary policy changes will be subject not only to the unemployment level falling below 6.5 per cent but also improvement in inflation and other economic measures.

Emerging markets have underperformed year-to-date, but their valuations are compelling and fund outflows have subsided.

In summary, for investors who are looking for strong capital appreciation, a combination of UAE, regional and emerging markets is likely to provide excellent returns in the medium term.

Saleem Khokhar is the head of equities at National Bank of Abu Dhabi’s asset management group

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