Dubai stocks hardly a bargain, according to analysts

Trading rout drove down valuations but they remain higher than emerging market averages.

The Dubai Financial Market General Index fell 15 per cent from its May 29 peak of 5,253 points to its June 30 low of 4,290. Pawan Singh / The National

Dubai stocks are still not cheap, despite last month’s massive sell-down, say analysts.

While the rout brought the valuations of listed companies closer to regional peers, they are still far higher than emerging market averages.

“We’re at sensible prices, they’re not at a bargain,” said Saleem Khokhar, the head of equities at National Bank of Abu Dhabi. “You have to pick and choose now, whereas before you could buy across the board.”

The Dubai Financial Market General Index fell 15 per cent from its May 29 peak of 5,253 points to its June 30 low of 4,290. From its low, it has rebounded almost 7 per cent and is up 35 per cent since the start of the year.

Dubai is currently trading at 18 times earnings. The ratio is on the higher end of the regional range. Abu Dhabi shares trade at 13 times earnings on average, Qatar at 16 times and Oman at 12 times.

Only Saudi Arabia has higher valuations than Dubai, with companies trading at 19 times earnings.

Before the crisis at Arabtec, triggered by the surprise departure of the chief executive Hasan Ismaik, Dubai shares were trading at 20 times earnings. They dropped to as low as 14 times at the height of the turmoil.

“Foreign investors had a fantastic opportunity to get in,” Mr Khokhar said, when valuations of Dubai shares hit a low of 14 times earnings at the height of Arabtec’s crisis. “There were more volumes on the buying than on the selling, which indicates that people moved in and took advantage.”

Shares listed on the Dubai and Abu Dhabi exchanges were incorporated into MSCI’s Emerging Markets Index last month. The inclusion came as emerging market shares were valued at 14 times earnings, well below the DFM General Index’s ratio of 20 times.

“Going forward, I think the market will start reacting and correlating with other emerging markets but this will take a little bit of time,” said Tariq Qaqish, the head of asset management at Al Mal Capital in Dubai. “Unless we see solid growth, I would say our markets will be moving sideways until investors believe those levels are reasonable.”

There has been more liquidity and investor interest in UAE shares during Ramadan, traditionally a period of lacklustre investor interest and low volumes. In the past, an absence of news catalysts would cause investors to await the next quarter’s results before actively trading the market again. But this summer has been ripe with corporate news.

“We should still see those institutional funds trying to stock pick prior and post the announcements of the second-quarter results, and I think many figures will end up positive, confirming the rally we saw post the first quarter and encourage them to direct more liquidity into those shares,” said Mr Qaqish.

But other stockbrokers said they were concerned that volumes and investor interest has waned for Dubai shares.

“I think the markets are still on people’s radar screen and they are hunting for more good deals,” said Khaldoun Jaradat at Brokerage House Securities in Dubai. “But the momentum we saw earlier this year is not there. If we look at the trading volume, the number of shares traded in May and June – barring the Arabtec debacle – you’ll see that it’s dropped compared to the first four months of the year. I hope that momentum comes back,but realistically, I don’t see that happening before September.”

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