Investors in the region are expected to focus on corporate earnings as the first quarter of the year draws to a close, providing an indication on whether UAE markets will be poised for the second leg of a rally that started in January.
Retail investors, who account for the majority of trading on the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM), will be looking carefully at the first-quarter numbers not only to see how they have done so far this year, but also for signs of what is to come.
"Every quarter is important, but speculators specifically look at the first quarter and annualise it when making investment decisions," said Fadi Al Said, a senior fund manager at ING Investment Management in Dubai.
The DFM General Index has risen as much as 27 per cent this year. The index has pared some of its gains but is still up 22 per cent. The ADX General Index has risen 8 per cent in the same period.
"Markets have been consolidating and profit-taking, and trying as much to hold onto the gains made so far in the year," Mr Al Said said. "If they continue to hold, any improvement in earnings will be a catalyst to move forward."
First-quarter results are due to be released at the end of next month. The country's two most prominent sectors, financial services and property, are still trading at attractive valuations.
"We saw a rally in the market, but that doesn't mean we jumped from cheap to expensive," Mr Al Said said. "The market is still cheap, but if we are looking to build on the gains, we need to see improvement."
Abu Dhabi banks are traditionally favoured over Dubai banks because of big dividend payouts after annual results are released.
Abu Dhabi Commercial Bank is trading at 8.4 times earnings, according to Reuters data. Emirates NBD, the country's biggest bank by assets, is trading at 6.5 times earnings. Dubai Islamic Bank is trading at 6.4 times earnings.
Emaar Properties is trading at 9.6 times earnings. The region's biggest developer is expected to report a 25 per cent increase in profit compared with the previous quarter, according to research estimates at NBK Capital.
Emaar's shares have risen 20 per cent so far, trading at Dh3 on Thursday.
Amlak Finance, a struggling, Sharia-compliant mortgage firm, had its debt cut by Dh4 billion as part of efforts by the federal Government to revive the company. Emaar should benefit as the developer holds a 45 per cent stake in Amlak, whose shares have been suspended since 2008.
Emaar's recurrent revenue from malls and hotels should expand on the strength of growth in Dubai's tourism sector.
"The outlook is definitely positive," said Sebastien Henin, a portfolio manager at The National Investor in Abu Dhabi. "The hospitality sector is booming. In Dubai, you can't find rooms at hotels. If you want to go to a restaurant, you need to call … to see if they have a table. The economy is coming back."
A decision on whether Abu Dhabi's two biggest developers, Aldar Properties and Sorouh Real Estate, will merge will likely be decided in the coming weeks.
For now, investors are sitting on the sidelines so as not to miss the next leg of the rally, Mr Henin said.
"Everyone has been taken by surprise after the momentum changed in January," he said. "It wasn't a bear market rally, but rather a game-changer for UAE markets."
Egypt's stock market has risen 42 per cent since the start of the year. Several companies are due to hold annual general meetings this week.
National Société Générale Bank, the French lender's subsidiary in Cairo, is expected to meet shareholders today. Talaat Moustafa Group, a luxury property developer; Ghabbour Auto, a car assembly company; and Lecico Egypt, a maker of ceramic sanitary ware, are to hold annual meetings on Wednesday.
Elsewhere in the region, Kuwait's index is up 7.4 per cent year to date at 6,243.5, Bahrain's BHSE Index is up 0.05 per cent in the same period to 1,148.22, and Qatar's QE Index has slipped 1.4 per cent since January to 8,653.28. The Saudi Tadawul All-Share Index moved 1.79 per cent to 7,675.61 yesterday.
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