Dubai's stock market pulled back strongly last week after a rise of as much as 27 per cent in the index since January, but many fund managers do not think that the recent dip in equity prices means the rally is over.
"We are still in positive territory and there is still plenty of room for more upside," said Haissam Arabi, the chief executive at the asset manager Gulfmena Investments in Dubai. "But we need to consolidate and have a breather for a second wave."
The Dubai Financial Market General Index fell 8.1 per cent last week, with most stocks losing more than 9 per cent on Wednesday amid profit-taking and lingering concerns over the European macroeconomic situation. The benchmark closed the week at 1,610.48. The Abu Dhabi Securities Exchange fell 3 per cent to 2,561.74 for the week.
Global markets soared on Friday after Greece averted a default. The EU is expected soon to release a €35.5 billion (Dh171bn) aid package after Greece said it had won majority acceptance from private creditors for a debt-swap deal.
Cheerier global markets will provide support for the local bourses despite a recent decorrelation, said Sebastien Henin, a portfolio manager at The National Investor in Abu Dhabi.
"I think most of the Greece development is priced in," Mr Henin said. "We have our own dynamic and we are starting to walk our own path."
With valuations still regarded as inexpensive, the accumulation of UAE equities is expected to continue as the economic backdrop improves.
"They are not stretched in general," Mr Arabi said. "If you look at Tamweel, the mortgage company, it is trading at 0.6 times its book value and trading at 5 to 6 times earnings, while the average is about 8-9 times." "Fundamentally speaking, there is evidence that the property market is improving, so that should help their business models. [The developer] Emaar hasn't unlocked its real value. There are still many examples like that."
The exception is the Dubai contractor Arabtec Holding, which is trading at 30 to 35 times earnings, Mr Arabi said. "For Arabtec, it's a special surge."
Arabtec has risen 62.5 per cent this year amid speculation that a strategic investor is buying shares in the company. Aabar Investments, an Abu Dhabi sovereign-investment company with stakes in Daimler, Virgin Galactic and UniCredit, on Tuesday emerged as the latest investor in the construction giant, with a 5.28 per cent stake.
Arabtec on Thursday reported a 15 per cent drop in annual profit to Dh260.5 million, disappointing investors. Arabtec's stock fell 8.8 per cent to close at Dh2.67 on Thursday, after falling 9.9 per cent on Wednesday and 7.1 per cent on Tuesday. The coming first-quarter results will show whether current valuations are justified.
"The earnings season will have an impact whether the market goes up, down, or sideways," Mr Arabi said. "We need to see confirmation that there is justification for a comeback and that valuations where they are remain cheap to justify a second wave of the rally."
The following corporate events may move markets this week.
Telecom Egypt, the North African country's fixed-line monopoly, is expected to hold its general assembly meeting tomorrow.
Orascom Telecom, an Egyptian mobile operator, is also expected tomorrow to release its financial results for last year.
Jarir Marketing, a retailer in Saudi Arabia, is expected to hold its general assembly on Tuesday.
Commercial Bank of Dubai, the lender that is 20 per cent owned by the DubaiGovernment, is expected to hold its general assembly meeting on Wednesday.
Elsewhere in the region, Kuwait's measure slipped 0.1 per cent to 6,177.10 for last week, Bahrain's rose 0.1 per cent to 1,161.11, Oman's gained 0.2 per cent to end the week at 5,859, and Qatar's fell 1.4 per cent to 8,593.67.
The Saudi Tadawul All-Share Index closed 1.4 per cent higher at 7,481.27, its biggest one-day gain in six months. Saudi Arabia's market was the only one trading yesterday.