UAE markets continued their strong performance in April with Abu Dhabi 8 per cent higher and Dubai up 17 per cent. According to World Equity Index Rankings by Bloomberg, as of the end of last month, Dubai - 32 per cent higher - is ranked second and Abu Dhabi - 24 per cent higher - is ranked fifth among primary world indexes by United States dollar adjusted year-to-date performance.
Average value traded on the DFM exchange surged to US$93 million per day, recording a 36 per cent increase over the previous month. Dubai CDS spreads have declined below 200, recording the lowest level since the Dubai World crisis in 2009.
Most listed banks reported their first-quarter numbers, the aggregate profitability of UAE banks increased by 17 per cent quarter on quarter and 21 per cent year on year.
The increase in profitability was driven by gains in investment income and in fee income and a decline in provisioning.
Thanks to an overall recovery in the UAE economy the addition of new non-performing loans has clearly slowed down and asset quality is showing signs of stabilisation. Loan growth in the system is still lagging but has shown some improvement during the first quarter.
Liquidity in the system has improved considerably, and because of limited lending, most of the UAE banks made early repayment of Ministry of Finance deposits. Although provisioning is stabilising, in comparison with the normal level of provisioning it still remains quite elevated.
Last year, average provisioning to pre-provisioning profit for UAE banks stood at 35 per cent as against a normalised figure of 15 per cent, indicating there is room to further reduce provisioning, which will in turn increase the profitability of UAE banks.
In April, the Dubai real estate index was up 10.4 per cent, led by Emaar Properties, which extended year-to-date total return to 50 per cent. Emaar Properties announced another strong quarterly performance supported by solid performance from hospitality, leisure and retail portfolios. Emaar announced two new projects in Dubai that received overwhelming responses from customers.
In Abu Dhabi, Aldar's first-quarter numbers were below expectations while Sorouh's numbers exceeded market expectation on the back of increased recurring revenues. Both companies announced that the merger between them will be completed in June.
In the construction segment, Drake & Scull outperformed the market in April on the back of continued market chatter on a potential stake acquisition by Arabtec. During the month, Drake & Scull announced three new government engineering & civil contracts worth Dh663m in Saudi Arabia, Abu Dhabi and Sharjah and another Dh180m contract in Qatar.
Du and Etisalat extended their gains in April followed by strong performance in the first quarter of the year. Etisalat reported slight growth in first quarter net profit supported by strong growth in revenues resulting from increased number of mobile customers. Etisalat also reported a 4 per cent growth in domestic revenues in the quarter.
Saleem Khokhar is head of equities at National Bank of Abu Dhabi asset management