Market analysis: much volatility as summer slowdown approaches

The market was finally subjected to a correction in the middle of May after the announcement of the UAE and Qatar stock inclusions and weights in the index.

UAE bourses were volatile last month ahead of the country’s inclusion in the MSCI Emerging Market Index, effective from last Monday.

The Dubai Financial Market General Index touched 5,374 points during the month before it closed down at 5,087 at the end of May, recording a monthly gain of 0.56 per cent. Abu Dhabi’s index was up by 4.13 per cent, mainly supported by strong performance from the banking sector. During the month, both Abu Dhabi and Dubai experienced increased trading as both active and passive emerging market funds started to build positions ahead of the index change.

After going through strong rallies in the first four months of this year, the market was finally subjected to a correction in the middle of last month after the announcement of the UAE and Qatar stock inclusions and weights in the index. Most of the blue-chip names corrected by 20 to 30 per cent before staging a strong rebound. Notable movements happened in Emaar, DP World and Abu Dhabi banks.

The average daily traded value on the DFM index was Dh2.25 billion last month. This was the strongest average value recorded since February 2008, an increase of 10.6 per cent month-on-month and 2.93 times the average value recorded in May last year.

Nine companies from the UAE qualified for the MSCI index with a combined weight of 0.60 per cent. Abu Dhabi Commercial Bank, FGB, National Bank of Abu Dhabi and Aldar Properties were qualifiers from the Abu Dhabi Securities Exchange, while the DFM stocks included were Emaar Properties, Arabtec, Dubai Financial Market, Dubai Islamic Bank and DP World.

The real estate and construction sector in the UAE’s performance was mixed, but the sector was supported by strong quarterly numbers and new project launches.

Emaar announced that it had received regulatory approval to list 25 per cent of its Emaar Malls Group on the DFM. The company also said that Emaar shareholders would have a priority right to subscribe to the IPO separately from the shares allocated to financial institutions and the general public. Proceeds from the IPO will be distributed as a dividend to shareholders, and the IPO is expected to take place after Ramadan.

Shares of Emaar were up by 5.5 per cent on a month-on-month basis. The smaller-cap Union Properties and Deyaar declined by 13.5 per cent and 23 per cent, respectively. In Abu Dhabi, shares of Aldar Properties rose by 9.5 per cent thanks to new project launches in Abu Dhabi and a good set of quarterly numbers.

In the construction segment, Arabtec was 4.8 per cent higher. The company announced better-than-expected quarterly profit supported by increased revenues and margins. Arabtec’s chief executive, Hassan Ismaik, announced this month that he had further increased his shareholding in the company to 28.84 per cent from 8.04 per cent.

The telecoms sector in the UAE remained weak. Du continued to show weakness in share price, widening its year-to-date loss to 12 per cent. Its competitor, Etisalat, is down 2.5 per cent year-to-date.

Etisalat completed the acquisition of Vivendi’s 53 per cent stake in Maroc Tel. The final consideration was €4.1 million and Etisalat will consolidate Maroc Tel from last month. Etisalat also announced a potential bond issuance for funding the acquisition of the stake.

The banking sector in the UAE put in an excellent performance as shares of NBAD increased by 21 per cent. Shares of ADCB and FGB increased by 20.7 per cent and 3.45 per cent respectively, while Union National Bank declined by 5.9 per cent. In Dubai, Emirates NBD was down by 2.55 per cent and shares of Dubai Islamic Bank increased by 14.3 per cent.

The UAE markets continued their positive trend but remained volatile. Further volatility is expected in the short term as they head into the traditionally slow summer season and Ramadan. But improving profitability of corporates because of economic expansion, lower cost of borrowing and other factors is likely to support stock market performance 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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Published: June 8, 2014 04:00 AM


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