UAE markets continued their strong performance last month with Abu Dhabi up 9 per cent and Dubai up 11 per cent.
According to World Equity Index Rankings by Bloomberg, as of May 31, Dubai - up 46 per cent - is ranked second and Abu Dhabi - up 35 per cent - is ranked fourth among primary world indexes by US dollars adjusted year-to-date performance.
Average value traded on the Dubai Financial Market (DFM) exchange surged to US$209 million per day, recording a 124 per cent increase over the previous month and five times more than in May last year.
Sentiment is improving on Dubai, with worries on debt and property easing. Credit default swap spreads have actually declined below 200, recording the lowest level since the Dubai World crisis of 2009.
During May, many UAE banks issued new bonds to take advantage of excess liquidity and low interest rates or to strengthen their Tier 1 capital ratios. Demand for bond issues remained strong in the secondary market. Re-rating of UAE banks continued during the month on the back of overall recovery in the UAE economy.
In first quarter of this year, new addition of non-performing loans slowed down and asset quality is showing signs of stabilisation. Overall provisioning in the system still remains quite high and going forward it is expected to normalise albeit gradually. From January to April, UAE banks' loan books grew by 2.1 per cent and deposits increased by 6.3 per cent.
Last month there was a catch-up rally for smaller capitalised banks. Bank of Sharjah and Sharjah Islamic Bank were among the best-performing stocks, with share prices increasing by 29 per cent and 18 per cent respectively, Dubai Islamic Bank's share price increased 14 per cent and ADCB's share price increased by 11 per cent.
Listed Dubai Financial Market stock being a beta play significantly outperformed the overall market, recording a positive 30 per cent return versus the overall DFM market which gained 11 per cent during May. Rumours of a possible Abu Dhabi Securities Exchange and DFM merger and prospects of an upgrade of the UAE to MSCI emerging market status added to positive sentiment surrounding the stock.
The strong monthly performance of the property and construction sector in the UAE continued during May supported by the continued recovery in the market. The Dubai real estate index was 9 per cent higher, led by Arabtec - up 20 per cent, and Drake and Scull and Union Properties, both up 10 per cent.
During the month, Emaar Properties, up 6.5 per cent, underperformed the index but managed to extend its year-to-date total return to 59 per cent. In the construction segment, Drake & Scull outperformed the market as the company was awarded a total of Dh2.24 billion worth of awards in different operating markets and also on the back of continued market chatter on a potential stake acquisition by Arabtec. The company announced it had received regulatory approval for increasing capital through a rights issue.
The first tranche of the rights issue subscription began yesterday, with each share in Arabtec entitled to receive one new share at Dh1.50. The first tranche of the rights issue will increase the company's share capital from Dh1.57 billion to Dh3.14 bn.
During May, du - 13 per cent higher - and Etisalat - up 11 per cent - further extended strong performance in the first quarter. Both Etisalat and Ooredoo have submitted binding offers to Vivendi for the acquisition of its 53 per cent stake in Maroctel. According to press reports, Vivendi is targeting $6.5bn for its stake.
Saleem Khokhar is the head of equities at NBAD Asset Management
