Dubai Financial Market at highest point in nearly eight years as UAE draws investors

With a continuing focus on IPOs and a strong economic outlook, equity markets in the Emirates remain robust

The DFM is up about 19.5 per cent so far this year. Pawan Singh / The National

The Dubai Financial Market reached its highest point in nearly eight years on Wednesday, a sign of growing investor confidence in the UAE's capital markets amid continued structural reforms and efforts to boost liquidity.

The DFM crossed the 3,987 level, the highest since August 2015, and is up nearly 20 per cent so far this year, beating MSCI World Index’s 12.6 per cent.

The strong growth momentum in the UAE this year is continuation of the robust performance of equity markets in the six-member economic bloc of the GCC, which outperformed global indices last year.

Global stock markets suffered the worst performance last year since the 2008 financial crisis, as appetite for risker assets ebbed amid mounting economic uncertainty.

Markets were hit hard as major central banks continued to tighten their monetary policies to rein in inflation. The MSCI All-Country World Index declined more than 20 per cent, the Nasdaq 100 fell 33 per cent in 2022, while the S&P 500 lost 19.4 per cent.

The Abu Dhabi Securities Exchange was the best-performing market in the GCC for a second consecutive year in 2022, gaining more than 20 per cent.

The UAE capital attracted $3 billion worth of listing proceeds in the first quarter of this year, placing it third worldwide, with Adnoc Gas raising about Dh9.1 billion ($2.5 billion) from the sale of a 5 per cent stake.

At the time of its listing, Adnoc Gas was the largest initial public offering globally this year.

Abu Dhabi alone accounted for 14 per cent of all listings worldwide during the first three months of the year.

Analysts say the GCC markets continue to remain a bright spot amid volatile global financial markets facing continued economic uncertainty as central banks tighten monetary policy further.

“Economic growth in the non-oil sector is likely to remain a key bright spot. Positive momentum here is likely to extend on a combination of public policy, domestic demand and performance of key sectors like tourism,” said Manpreet Gill, chief investment officer for Africa, Middle East and Europe at Standard Chartered’s wealth management unit.

IPO boom

The GCC dominated global initial public offering activity in 2022, raising about 23 per cent ($21 billion) of the $91 billion raised in all IPOs worldwide last year, according to EFG Hermes.

The flurry of listings on regional bourses came amid strong investor demand as GCC economies rebounded at a quicker pace from the coronavirus-induced slowdown and liquidity has been shored up by high oil prices.

The outlook for the rest of 2023 remains positive, EY said in its Global IPO Trends report in March.

Initiatives such as the Dh5 billion ($1.36 billion) Abu Dhabi IPO Fund will support the listing of private companies that will help maintain the IPO momentum in the local markets.

“This will help in generating a good pipeline for the ADX,” EY said in the report.

Mena’s weight to rise in EM index

Looking ahead, the Mena markets are set to continue posting strong growth, driven by the GCC, Goldman Sachs said in a recent report.

It expects the Mena region’s weight in the MSCI emerging market index to rise to 10 per cent from 7.3 per cent currently, over the coming years, the investment bank said.

“We have on average 17 per cent upside for our Mena financials coverage, on our 12-month price targets (the highest across sectors in Mena), and we are selectively constructive on financials within Saudi Arabia, UAE and Qatar,” the investment bank said.

“We calculate that EM investors moving from their current underweight position to market weight on Mena could drive more than $50 billion of inflows over the medium term.”

Goldman Sachs economists expect Mena equity markets to increase in size by around 10 times by 2075 from their current levels, and become a sizeable bloc within EM market cap.

While the outlook remains robust, global headwinds persist in the short-term, analysts say.

Nabil Sleiman, chief investment officer, Al Dhabi Capital, says while regional markets received a boost from strong oil prices in the first half of the year, the crude demand outlook for the second half of the year remains uncertain.

“Oil prices have held up well during the first half of the year, lending support to expansionary policies of governments in the GCC,” he told The National.

However, concerns regarding demand from China remain, and this is a significant risk given that China accounts for nearly 15 per cent of oil demand, he added.

GCC equity markets have moved mostly in tandem with emerging markets so far this year, said Ibrahim Masood, head of equities at Mashreq Capital.

Historically emerging markets tend to be weak during period of economic softness in the US.

“There are competing views about sticky inflation or an upcoming US recession in [the second half of the year]. In a recession scenario, GCC markets should outperform broader emerging markets due to better fiscal buffers and lack of material forex risk though oil price weakness may increase volatility,” said Mr Masood.

“In a sticky inflation/stagflation scenario, nominal growth will help to offset valuations coming down as rates stay higher for longer. Given the uncertainty at present a fundamental focus appears appropriate for investors for H2.”