Stars are aligned for a solid 2014 for UAE markets

High underlying confidence among companies and investors, easing political tensions in the Middle East, and the recovering global markets make for a positive outlook.

The major news event for the UAE markets last month was Dubai winning the right to hold the World Expo 2020.

Many investors had anticipated a win and were proven right, and the market reacted well to the news. On the geopolitical front, the Middle East made headlines as the P5+1 group entered into a temporary six-month agreement with Iran, that if followed through with a wider long-term agreement, could lead to a fundamental change in the dynamics of the region.

The global environment also supported UAE markets as China unveiled a new focus on market-driven reforms and US equity markets hit record highs. UAE markets last month delivered slightly positive returns; Abu Dhabi’s benchmark index rose 0.1 per cent, and Dubai’s edged up 0.8 per cent.

The UAE banking system remains a beneficiary of the strengthening domestic economy. Dubai’s economy grew 4.9 per cent in the first half of the year, driven by tourism and the hotel industry. The tourism sector grew 13.7 per cent, while the trade sector – which accounts for nearly a third of GDP – grew 4.1 per cent.

Two new regulations were announced by the central bank. The first was on mortgage lending and the second was on concentrated lending exposure. The long-term effect of these regulations should be positive for the banking sector and the economy. Last month, Mashreq shares rose 10 per cent, ADCB 7 per cent, Dubai Islamic Bank 6 per cent and First Gulf Bank 5 per cent, while Emirates NBD and National Bank of Abu Dhabi respectively declined 5 per cent and 4 per cent.

The average value traded on the Dubai Financial Market dropped to US$192 million a day last month, down 23 per cent from October. But it is still some five times the trading value achieved in November last year. The shares of DFM closed the month 3.4 per cent down, possibly affected by investors’ growing concern that the market might be overheating. They were also awaiting the decision on Expo 2020. The win is a further boost to Dubai’s market sentiment, which has already improved significantly this year.

Dubai’s property and construction sectors continued to edge higher in anticipation that Dubai’s bid would be successful. Emaar gained 3.6 per cent during the month. In Abu Dhabi, however, Aldar fell 11.5 per cent as investors booked profits after the third-quarter results announcement. The stock has more than doubled this year. Aldar’s net profit in the quarter rose to Dh407.5m from Dh205.7m last year, as provisions and writedowns were no longer required.

In the construction segment, Arabtec’s third-quarter net income jumped to Dh100.8m, from Dh35m a year earlier, on the back of new projects. That beat the market consensus estimate of Dh54m. Arabtec also cancelled the second part of its rights issue. The stock declined 5 per cent last month.

In the telecoms sector, Etisalat announced the completion of its purchase of Vivendi’s 53 per cent stake in Maroc Telecom. The deal was valued at $5.7 billion, including dividend which Etisalat would pay to Vivendi. The deal is the largest in the region and is valued at 6.2 times Ebitda. I view this deal to be earnings accretive and positive for Etisalat.

The UAE’s markets have risen significantly in the first 11 months this year. The domestic economy has strengthened, and the underlying confidence among companies and investors is high. In addition, the local property market has been highly resurgent. All these factors combined with easing political tensions in the Middle East, and the recovering global markets set the stage for what should be a solid showing in 2014.

Saleem Khokhar is the head of equities at NBAD Asset Management Group