Local bourses riding out global storm

Despite the Dubai Financial market general Index ending last week lower, the country’s stock markets have outperformed many global market barometers. Jeff Topping / The National

A bruising time for world markets did not spare the Emirates last week, but investors and economists are optimistic that the region will remain resilient this week.

The Dubai Financial Market General Index ended last week down 0.4 per cent, while the Abu Dhabi Securities Exchange General Index fell 0.3 per cent, its second week of declines.

Despite the losses, the UAE's markets outperformed many global market barometers, holding up better than the MSCI Emerging Markets Index, which fell 0.9 per cent during the week.

Sentiment on local markets was being soured by the return of fears surrounding the euro-zone debt crisis, said Tariq Qaqish, a fund manager at Al Mal Capital.

"Whatever's happening on the international markets is going to affect sentiment here," he said. "But so far the sentiment looks better - investors are looking towards first quarter results."

Markets in Europe tumbled last week as Spain's prime minister Mariano Rajoy warned the country's future was at stake as he battled to avoid a bailout.

Fear over the euro-zone sovereign debt crisis reared its head again as Spain and Italy's borrowing costs spiked, with Spain's 10-year bonds yields, which increase when prices fall, rising to 5.9771 by the end of the week.

Meanwhile, the S&P 500 fell for its second consecutive week, the first time the US index has done so since November, over worries that the recovery in the world's largest economy was losing steam.

US consumer confidence fell to 75.7 from 76.2 last month, according to the Thomson Reuters/University of Michigan index of consumer sentiment.

Local banks said the debt overhang at Dubai's government-related holding companies was easing, boosting investor interest in the emirate.

"The Dubai debt market continues to surprise investors with its resilience in the face of what was seen as a challenging debt refinancing in 2012," said Gary Dugan, the chief investment officer at Emirates NBD Private Banking.

Signs of progress on debt restructurings at Dubai's government-related entities, such as Dubai International Capital, were contributing to local sentiment.

"The good news flow for Dubai stands in sharp contrast to the ongoing problems in the euro zone," he said. "Hence we have seen a sharp improvement in the standing of Dubai credits in the markets."

On Thursday, Reuters reported that Dubai Group, an arm of Dubai Holding, had restarted US$10bn (Dh37.63bn) debt restructuring talks that were said to have stalled earlier this year.

Large cap stocks were expected to guide local markets this week, Mr Qaqish added. Companies including Abu Dhabi National Energy Company, also known as Taqa, will hold shareholder meetings this week.

The S&P AFE40 Index of Arab blue-chip stocks fell 1.3 per cent during the week to 56.62 points.

Notwithstanding the cooling outlook for western economies, Middle East markets' "unsustainable" rally since January had been due for a correction, analysts from Capital Economics wrote in a research note.

"Consistent with trends in other emerging markets, most of the Middle East's stock markets have dropped back from the highs reached earlier this year," the report said. "While Egypt's fall is perhaps the most striking, the region's other strong performers, namely Dubai and Saudi Arabia, also dropped from earlier peaks."

However, Saudi stocks were still looking cheap compared with historical averages, the report added.

"Saudi equities have been boosted by strong earnings announcements and hopes that the largest stock market in the region could soon open up to foreign investors. Indeed, trading volumes in Saudi Arabia are now over twice their historic averages."

As Saudi companies begin to report earnings for the first quarter, signs were emerging of strong growth in the kingdom's economy.

Saudi Arabia's stock market had its worst week since August, falling 4 per cent during the week.

However, signs of strength among the kingdom's financial services sector had pushed markets up on Wednesday, Mr Qaqish added.

"Some of the companies have released below-estimates numbers, but I still believe this isn't an indication of the whole market. We've seen more good results from banks, that's why the market rebounded again," he said.

The Tadawul All-Share Index fell 0.65 per cent yesterday to 7,524.36.

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