Markets Preview: Investors await for cues from Aldar and Sorouh, and abroad from the US elections this week.
Aldar and Sorouh 'very close' to merger
Investors this week will be eyeing third-quarter results from the capital's two biggest property developers, ahead of an upcoming potential merger.
Aldar Properties and Sorouh Real Estate are due to report quarterly earnings on Wednesday. The two companies announced in March they were in discussions over a potential tie-up that could create an entity with US$15 billion (Dh55.09bn) in assets.
"The merger story is by far important at this point of time," said Sebastien Henin, a portfolio manager at The National Investor, an investment company in Abu Dhabi. "We are now very close to the end of the process, from a valuation point of view." A decision on the proposed merger has been expected since June, when a joint committee of both boards was set up to assess the legal and commercial viability of the deal.
"The financial results will illustrate the progress of recovery in the sector as a whole, and how that will be reflected and reinforced in their balance sheets," said Haissam Arabi, the chief executive at asset manager Gulfmena Investments in Dubai. "That would reflect the valuation on the merger, and which of the shareholders will mostly benefit."
Shares of Aldar, the developer behind the Yas Marina Formula One Circuit, have risen 47.8 per cent so far this year, while Sorouh, which built Reem Island's Sun and Sky Towers, has risen 56.4 per cent. They have outperformed Abu Dhabi's index, which has risen 11.2 per cent in the same period.
"People have priced in that this will happen," Mr Arabi said.
Property companies in Abu Dhabi were hit hard by the global financial crisis in 2008, with prices dropping as much as 60 per cent from their peak in some places.
Aldar reported a full-year profit last year following a loss the year before, after the developer received more than $10bn in funding and cut 105 jobs last November. Sorouh has also shed jobs over the past year. A merger would create a larger entity that would be dominant in the capital and help to reduce overheads and competition for business at the same time.
Analysts at Arqaam Capital, HSBC and SICO Bahrain expect Aldar to post a 77 per cent drop in third quarter profit to Dh31.80 million. Aldar reported a net profit of Dh143.99m in the third quarter of last year.
Similarly, the same analysts expect Sorouh to post a 43 per cent increase in profit to Dh96.35m. Sorouh reported a net profit of Dh67.34m in the third quarter of last year.
Property aside, focus will turn to global markets abroad, after stellar results from companies in the Emirates saw muted reaction last week amid cautiousness over the closure and re-opening of stock markets in the United States.
Wall Street opened mixed on Wednesday, with the Dow Jones Industrial Average down 0.08 per cent to 13,096.50 points, while the S&P 500 Index added 0.02 per cent to 1,412.16 points.
The New York Stock Exchange, Nasdaq and other trading platforms in equities and fixed income were halted for two days last week because of Hurricane Sandy.
Market chatter has focused on the looming fiscal cliff with roughly $600bn of tax cuts and some spending programmes due to expire in January. Economists have suggested that this will amount to a 4 per cent drag on growth.
"If there is nothing done to cushion the blow from running into the fiscal cliff then the US economy could be 2013's biggest casualty and it could knock global risk sentiment over the medium-term," said Kathleen Brooks, the research director of EMEA at Forex.com.
The market wants a Romney win, said Rakan Himadeh, an analyst at Al Mal Capital in Dubai. "He will kick the can down the road for US economy and investors by extending Bush tax cuts."
"If Obama wins, it is likely to be perceived as negative for markets but would arguably be the better choice for the longer-term outlook of the US economy."