x Abu Dhabi, UAEThursday 18 January 2018

Dubai stock market index passes 4,000 for first time since 2008

The Dubai Financial Market index briefly hit 4,035.07 points before settling down to just under 4,000. It has not been this high since before Ramadan in 2008.

The last time Dubai’s index hovered above 4,000 points was on September 29, 2008. Jumana El Heloueh / Reuters
The last time Dubai’s index hovered above 4,000 points was on September 29, 2008. Jumana El Heloueh / Reuters

Rising share prices sent the benchmark Dubai equity index above 4,000 points in intraday trading for the first time since 2008.

The Dubai Financial Market General Index briefly hit a high of 4,035.07 points. By the close of trading, however, it erased some of the gains, ending the session 1.1 per cent higher at 3,974.61 points.

Market observers said that new projects from property developers, coupled with a surge in dividend offerings of bonus shares from companies and banks following encouraging results, were encouraging demand from retail investors.

“The news flow has been completely crazy,” said Sebastien Henin, the head of asset management at The National Investor, an Abu Dhabi-based investment bank.

Dubai’s biggest contractor, Arabtec, has doubled the size of its order backlog in the last six weeks, while the developer Emaar Properties launched three projects and has since recorded Dh2 billion in sales targeting the upmarket sector, a sector that retail investors believe brings good margins, the fund manager said.

Stocks listed on the Abu Dhabi Securities Exchange, Dubai Financial Market and Nasdaq Dubai are due for inclusion into MSCI’s emerging markets index in May.

“Our markets are up 15 per cent so far this year, whereas emerging markets are down almost 10 per cent,” said Mr Henin. “There is a clear disconnect.”

The last time Dubai’s index hovered above 4,000 points was on September 29, 2008, the last day of trading before the Eid break. When trading resumed, the index was subject to panic selling, erasing 25 per cent of its value over the next four days amid a worldwide equity sell-off fuelled by the global financial crisis.

Dubai’s GDP grew 11 per cent in 2008, but the emirate’s economy shrank 2.4 per cent in 2009. This year it is expected to grow 4.7 per cent, according to data from Dubai’s Department of Economic Development.

The outlook at the end of 2008 was negative. Companies were forced to restructure and banks needed a liquidity boost from the central bank to make provisions amid a rise of defaults.

“It was a scary drop, with stocks plummeting and investors not having even a moment to think,” said Tariq Qaqish, the head of asset management at Al Mal Capital, a Dubai-based investment bank. “It was exactly the opposite of what is happening today.”

Property developers were affected and mortgage companies were forced to suspend trading after the crisis cut access to global credit.

Shares of Tamweel, a Dubai mortgage firm, only resumed trading in April 2011. Shares of the other listed mortgage financier, Amlak, remain suspended from trading. Dubai Islamic Bank in January last year approved the 100 per cent takeover of Tamweel, providing the mortgage firm with a much-needed cash injection.

“Tamweel has come out of the crisis very well now,” said Saleem Khokhar, the head of equities at National Bank of Abu Dhabi, “They’re now in an environment where property prices are surging and transaction volumes are moving tremendously. At the same time, their shareholder, DIB, has done really well with deposits. So the whole picture is looking good.”

Dubai is trading at 18 times earnings, Mr Khokhar said, whereas the UAE as a whole has moved from eight times to 12 times earnings. Emerging markets are trading in the range of 10 to 11 times earnings since being hit quite hard over last year and this year.

For comparison, Mr Khokhar said that in February 2008, Dubai traded at 18 times earnings. When the collapse happened by June, Dubai was trading between eight and nine times, and by December it was down to about seven times.

“We’ve got a pendulum effect coming in, where we were very undervalued and now we’re hitting fair value and then crossing fair value,” Mr Khokhar said. “When it comes back down the middle point, where you settle will be the fair value. The worry is that markets are moving ahead of the economic recovery that’s driving up prices.”