x Abu Dhabi, UAEFriday 19 January 2018

Four reasons why stock prices are buoyant

Prices of shares listed on DFM and ADX are up 6.5 per cent and 14.5 per cent, respectively.

Profits at publicly listed companies in the UAE may have fallen in the third quarter, but their stock prices have not followed suit.

Prices of shares listed on the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) rose significantly during the quarter. The DFM index rose by 6.5 per cent, while ADX stocks rose by 14.5 per cent.

That rise came after a second quarter in which earnings were also down compared with the same period last year. So what explains the apparent disconnection between markets and profits?

There are four reasons, says Sebastien Henin, a portfolio manager at The National Investor in Abu Dhabi.

First, Dubai World, a government-owned business conglomerate, recently reached an agreement with its bank creditors to restructure US$24.9 billion (Dh91.45bn) of debt, boosting confidence. Second, investors have been emboldened by recent bond sales by the Dubai Government and numerous companies in the UAE amid improved global credit markets. Third, UAE stocks were recently included in the FTSE index of stocks in which many international investors put their money. Fourth, a surge in stocks in emerging markets such as China, India and Brazil has helped.

"We have seen a disconnection between market performance and results," Mr Henin said. "From my point of view, people are not expecting something interesting on the results side in the short to medium term."

The oil factor has also played a role, analysts say. With crude prices rising - they recently reached a two year high - investors are expecting some of the windfall to filter down into the rest of the economy, potentially leading to higher profits at listed companies.