Booming UAE stock market poised for leap in 2005

From September beginning to yesterday the NBAD General Index gained more than 30 per cent. The Shuaa Capital UAE Index recorded the biggest gain among the regional indices gaining 17.54 per cent as a broad based rally prevailed in the market in November.

The SC Arab composite index for the region's stock exchanges recorded a gain of 60 per cent this year. The common consensus among analysts for such consistent gain has been the surging oil prices. But as many believe that the UAE's stock boom is supported by strong corporate performance backed by equally strong regional macro economic fundamentals.

“The domestic market remains in a strong growth trajectory; although the buoyancy in the exchanges continue to be confined only to a few stocks in terms of trading volumes. A recent welcome development is the momentum in Etisalat's shares; following its foray into Saudi Arabia,” said Suresh Kumar, General Manager of Emirates Financial Services.

According to him significant overseas interest in and some leverage are both adding to the galloping run-up in the local market. On a positive note, performance outlook for listed companies is good; with the banking, real estate and insurance sectors likely to post strong earnings growth in the current financial year.

Most UAE based companies have reported 30 to 50 per cent gain in their net earnings during the first 9 months of the year. With the improved earnings for the whole of 2004 on annualised basis, the UAE has an estimated market P/E of 20, which is relatively smaller compared to the other leding regional markets such as Saudi, which has a market P/E of 23. This clearly points to further potential for the UAE stocks.

Profitability of most listed companies in the UAE has reported major gains during the current year. UAE's stock market has an added dimension that it has been investment led, rather than mere hot money inflow from portfolio investors. Currently, on the macro economic front the UAE stock market is backed by close to $60 billion investments in the real estate sector, and several billions from the oil windfall.

The huge investments in construction alone have given a big philip to the other sectors of the local economy boosting the over all demand scenario with big gains in corporate earnings. Analysing the market trends in November, Walid Shihabi, Head of Research at Shuaa Capital, said, “The overall FY 04 corporate performance has revealed itself through the 9 month 04 earnings announcements and investors have adjusted their views accordingly, taking positions in line with full year expectations.”

The value of shares traded in the first 11 months of this year peaked at Dh45 billion, more than double the value of shares traded during the whole of last year and DFM accounted for over 70 per cent of the total UAE market turnover.

There are about 100 public-joint stock companies in the UAE. Fifty-one companies are listed on the two stock exchanges, 34 on the Abu Dhabi Securities Market (ADSM) and 17 on the Dubai Financial Market (DFM). The shares of 20 companies are actively traded on the OTC market but shares of other companies are traded only infrequently and some are not traded at all because only a few shareholders hold them. Overall, supportive macroeconomic growth coupled with expansions on a regional scale promises further growth in the UAE equities.

The market outlook is reasonable with a market P/E of about 20. In economic terms too, the future looks promising. The current year has been a boom year for the UAE in terms of economic performance. With the oil prices projected to remain in $40-45 range, the unabated growth in the the real estate sector with the inflationary pressure less than significant levels, the macro trends favour the UAE market.

The only real problem that could upset the market is the continuing fall of the dollar against all leading currencies. With the UAE currency pegged to the dollar, lower valuations are making imports from Asia and the Eurozone more costly, squeezing companies' margins.