x Abu Dhabi, UAEThursday 18 January 2018

Strong showing for UAE real estate and banks in March

The real estate and construction sector remained in the limelight on the back of many positive project announcements.

Global markets in March remained volatile as much of the news was dominated by Ukraine and Russia’s move to annex Crimea, much to the dismay of United States and European leaders.

Diplomatic initiatives and sanctions are under way, but the situation remains tense. Investors have now adjusted to expectations of a lower growth rate in Chinese GDP – between 7 and 7.5 per cent – as China allows market forces to play a larger role in the economy.

UAE markets were mixed. Abu Dhabi market’s declined by 1.3 per cent, whereas Dubai’s market increased by 5.5 per cent. However, first-quarter returns were stellar – Abu Dhabi gained 14 per cent and Dubai 32 per cent.

The dividend season is coming to a close, and in general many companies have increased payments. Overall, UAE market sentiment remains quite bullish as economic growth continues to accelerate. The UAE will be upgraded to the MSCI Emerging Market index on June 2, and this should continue to underpin the market in the near term.

The real estate and construction sector remained in the limelight on the back of many positive project announcements, strong fourth quarter numbers and improving sector fundamentals.

Emaar Properties announced that it would list 25 per cent of Emaar Malls Group (EMG) through a secondary offering. EMG has an estimated value of Dh32 billion to Dh36bn, and proceeds from the EMG listing – expected at Dh8bn to Dh9bn – will be primarily used to pay a special dividend to shareholders. Timing of the IPO is expected to be before Ramadan, and the listing will be simultaneous on Nasdaq Dubai and London Stock Exchange.

Emaar’s long-term strategy is to separately list its various subsidiaries. The company also increased its 2013 dividend to 15 fils from 10 fils the previous year. Real estate prices and rentals in Dubai continue to rise in the first quarter of this year on the back of strong performance by the tourism and hospitality sector and a number of new project launches.

In March, shares of Emaar and Union Properties were up by 9 per cent and 13 per cent respectively, supported by strong quarterly numbers. Emirates Reit started book-building for its Dh500 million IPO, while Damac Properties came to the market with a sukuk issue of US$650m. Demand for both issues remains quite strong.

In Abu Dhabi, deliveries of new apartments on Reem Island such as Gate Towers continue, and construction activities on the island are going on at a full swing. We expect major project announcements in the emirate during Cityscape Abu Dhabi this month.

In the construction segment, Arabtec continued to outperform the market in March – it is up by 108 per cent year-to-date – and surprised the market with another massive $40bn project announcement in Egypt for the development of affordable housing.

Last year we witnessed strong re-rating of the UAE banking sector and the share price of many banks increased in excess of 100 per cent. The banking sector continues to benefit from strong economic growth and also from recovery in real estate prices. Abu Dhabi Islamic Bank was the best-performing stock last month, with the share price increasing by 9 per cent, followed by Mashreq at 5 per cent. Sharjah Islamic Bank’s share price, however, declined by 10 per cent, First Gulf Bank’s fell by 5 per cent and Commercial Bank of Dubai’s lost 4 per cent of its value.

In the telecoms sector, du’s underperformance has not gone unnoticed. The company has a year-to-date decline of 9 per cent despite an increased dividend payout for the second half of last year. Etisalat remained flat despite announcing solid fourth-quarter numbers and dividends for the second half of last year, which were in line with market expectations.

Shares of the Dubai Financial Market gained 5.6 per cent last month, in line with the overall index, which rose by a similar 5.5 per cent. The average daily traded value fell 30.3 per cent month-on-month to Dh1.45bn, but it was still 5.77 times more than that recorded in March last year. The SCA announced that UAE’s stock exchanges were moving closer to setting up a platform for secondary listings of companies from across the region.

Undoubtedly one can expect volatility in the UAE markets, but for those who believe in the strong underlying fundamentals, we can expect continued strong returns.

Saleem Khokhar is the head of equities at National Bank of Abu Dhabi

Follow us on Twitter @Ind_Insights