Investor Frenzy takes over the stock market

The gross turnover of DFM during the first five months is 60 per cent more than the total UAE market turnover of Dh67 billion for the whole of 2004. The market turnover for the whole of UAE for the first five months has crossed Dh140 billion.

“We have been witnessing a big surge in the volumes and turnover from the start of this year. There have been a big increase in the number of investors too. This is a clear sign that the market is maturing and more people are taking exposure in stock market investments,” said Essa Kazim, Director General of Dubai Financial Market.

The DFM volumes climbed dramatically during the past five months to 7.2 billion shares compared to just over 900 million shares during the same period last year.

The quintessential DFM investor can't be categorised into any particular category. They include young, elderly, women, UAE nationals and expatriates, all wanting to have a share in the current market boom. A large number of young UAE nationals are trying their hands on stock picking.

“We get a variety of retail investors every day and a large number of them are first time investors on the stock market. The entry of these new investors are adding to the demand and the overall excitement in the market,” Kazim said.

During the first four months of this year, several companies have adjusted the nominal value of their shares to Dh1, thus opening the door and allowing opportunities for the small investors and first timers to make their start on the market with small investible funds. In addition, a number of new issues have added to the total available investment pool.

Strong first quarter results combined with distribution of dividends and bonus shares have added to strong demand growth. Market analysts said there is growing interest in local equities and share trading is picking up strongly on the stock exchanges. “During the summer months the UAE market usually go through a lull, but going by the current trend, we do not think this is going to happen this year and expect the DFM turnover to cross 150 billion by early September,” said an analyst.

EMAAR Properties reported highest gains since the beginning of the year with close to 30 per cent increase in its share price. In the banking sector, National Bank of Dubai, Emirates Bank and Mashreqbank reported 10.3 per cent, 8.3 per cent and 8.9 per cent gains respectively.

The IPO boom during the past one year and opening up of the market to foreign investments has added to the surge in market volumes. Since the Amlak IPO in January 2004 close to a dozen major IPOs have hit the market with huge success.

Despite the insatiable demand, the current market price earning multiple (P/E) of 28 is below the 1998 high of 30. Of course, a lot happened since then. The UAE now has two active electronic trading floors with demat trading. In 1998 there was an only an over-the-counter market which traded in physicals. In addition, the market watch dog Emirates Securities and Commodities Authority is also now in existence to ensure greater transparency and further market reforms. For example, the ESCA has ensured the timely publication of financial results with timely reports on corporate actions.

Above all, the allround boom in the UAE economy supported by huge liquidity inflow, surge in oil revenues and the easy leverage finance available for IPOs from the banking system are tempting all and the sundry to try their hands at the millions to be made on the stock market.

GCC's invisible hands boost UAE shares

DUBAI — The Gravity defying performance of the UAE market for the past 18 months has a strong external factor in the form of the overwhelming GCC liquidity flowing into the local stock market.

Investments from Saudi Arabia have been a major factor contributing to the boom in the UAE. Last year Saudi investors pumped more than Dh4 billion into the UAE stocks. The UAE regulations allow citizens of GCC countries to trade on the local stock market. The UAE stock market has done very well in the last two years and the capitalisation has been positively helped by a 97 per cent increase in the prices of stocks in 2004.

The first quarter of the current year witnessed an unprecedented surge in the total value of the local stock market transactions to Dh53.9 billion, representing 80 per cent of the total value of transactions during 2004 at Dh67 billion. According to a recent DFM report, GCC investors traded shares worth a total of about Dh5.4 billion on the Dubai Financial Market (DFM). By end of May this figure is expected to exceed Dh7 billion.

Saudi investors active in the DFM traded shares worth Dh4.7 billion during 2005's first quarter, During the same period, Bahraini investors traded Dh411.8 million and the Kuwaitis traded Dh130.2 million worth shares. Foreigners traded Dh12.4 billion worth of shares during the same period.

The market capitalisation of the Abu Dhabi Securities Market rose to Dh367 billion last month. This makes it the second highest among Arab stock markets, after Saudi Arabia. ADSM statistics showed that the trading value in the first quarter of 2005 totalled Dh20 billion, surpassing the full year trading value of 2004 which stood at Dh16.34 billion

Both private and institutional AGCC investors have ploughed hundreds of billions of dollars into foreign stock exchanges since the discovery of oil. However, over the past few years, with government encouragement, there has been a reversal. “GCC investors now see better investment opportunities on local bourses and, as an extremely cash-rich region, the potential for growth is virtually limitless” an analyst said.

Liquidity takes the driver's seat

DUBAI — In the beginning of this year many market analysts had warned the investors of an impending correction on the UAE stock market. However, on the contrary, during the first five months of year, the market has witnessed more than 60 per cent growth over the previous year's turnover.

Last year the Kuwait Stock Exchange had posted a gain of more than 30 per cent, defying the analysts predictions that the market will correct itself following a 70 per cent growth in 2003. Going by the trends so far, it looks like the the UAE bourse is going to deliver a very similar result.

Earlier this year most analysts thought that the UAE market was not cheap any more. With the annualised corporate earnings, the UAE had the second highest market P/E at 22.9.

Now with the market P/E at 28, many feel that it is possible to sustain the growth as the high oil prices and the local liquidity combined with a big chunk of regional offshore investments coming home, even an overvalued market could be sustained for sometime.

Backed by strong economic fundamentals such as strong oil prices, relatively low local interest rates, high liquidity chasing strong corporate earnings growth in excess of 50 per cent, the UAE market is expected to deliver strong performance up to the close of second quarter.

However, the market is expected to experience a mild correction in the third quarter, bringing the share prices to more realistic levels.

“The abundance of liquidity has resulted in some shares overshooting their realistic levels. However, many of these stocks are fundamentally strong, thus a correction cannot shave off the entire value,” said P Krishnamoorthy, Deputy General Manager of Dubai International Securities.

Correction: who will get hit?

DUBAI — Up to what point the market will find support from liquidity and low cost funds is the big question many analysts in the UAE market want to avoid. All admit that there is a very real danger that investors entering the UAE stock market now can get hurt in the event of a market correction.

“The investor enthusiasm seem to be getting out of control with every body wanting a share in the market gain. Many forget the fact that there is a huge downside risk for the late entrants into the market. Although many leading stocks have Market P/Es in excess of 35, every new entrant thinks that they are exiting at a higher rate than the existing market rate. This is a stage when sentiment alone will drive the market. Thankfully, the corporate performance and the macro economic trends have been very supportive,” said an investment banker.

However, he cautioned about the all-pervading optimism, “It takes just one incident to damage the investor confidence and drive the whole market down.” In the event of a mid-year correction, Shuaa Capital expects only the speculative stocks to get hit, while it sees construction, real estate, cement, building materials, telecom and banking shares will continue to report strong growth during 2005.

Investment bankers and brokers feel that introduction of more IPOs could absorb the excess liquidity in the market while it will help the listed stocks to stabilise at their realistic valuation levels.

Listing of many family owned businesses along with the dilution of government shareholdings in listed companies is expected to enhance the stock market from supply side. Governments own large chunk of shares in many blue chip companies. For example the Dubai Government owns significant stakes in Emirates Bank International (EBI) where it holds 77 per cent is already listed on DFM.

There are other listed companies where government holds substantial stake. The government holds 31.88 per cent stake in Emaar Properties, 20 per cent in Commercial Bank of Dubai (CBD), 14.24 per cent in National Bank of Dubai (NBD), 30 per cent in Dubai Islamic Bank (DIB) and 10 per cent in Union National Bank (UNB). There other fully owned non-listed companies such as the Dubai Electricity and Water Authority (DEWA), Dubal, Emirates airline, Enoc, Dnata, Dubai Dry docks, Dubai World Trade Centre (DWTC) and Dubai Transport and Ducab which has successful track record and are potentially high value stocks if they are listed on the stock market.

The new company law is expected to make the primary market issues easier. Listing of more companies with good track record will increase the depth of the market and reduce the impact of liquidity overhang while making the market less susceptible to unrealistic price movements.