Second only to Venezuela in terms of performance, the Dubai Financial Market had an extraordinary year on the back of Expo 2020 success and the emerging markets upgrade. Abu Dhabi didn’t fare badly either as foreign investors piled in to buy UAE shares.
UAE stock market gains take on the world
Dubai’s stock market capitalisation almost doubled in 2013 amid reignited investor interest anticipating the upgrade in its classification to emerging markets status and Dubai winning the bid to host the Expo 2020.
“It was an interesting year,” said Marwan Shurrab, fund manager and head of trading at Vision Investments & Holdings in Dubai. “The expectations from the start was positive based on a recovery for corporates and valuations appeared cheap.
“Then we had the first catalyst, the MSCI upgrade, followed by the Expo announcement, which cemented the positive sentiment taking the markets to levels not seen since 2008.”
In the end, the 107.6 per cent gain for 2013 made Dubai the world’s second-best-performing index in US dollar terms, behind only Venezuela.
And Abu Dhabi’s market had a strong year too, with a gain of 63 per cent for the period.
The gains have vastly increased the total value of the exchanges’ stocks, and the growing pile has drawn in foreign investors too.
The value of total outstanding shares listed on the Dubai Financial Market has surged to Dh95.7 billion on December 16 from Dh47.35 billion last January. On the Abu Dhabi Securities Exchange, market cap has risen to Dh189.49bn on December 16 from Dh123.26bn last January.
The international index compiler MSCI, which tracks US$7.3 trillion in equities around the world, in June classified the UAE as an emerging market, an upgrade from its previous designation as a frontier market.
In November, Dubai, which had been hit hard by a housing crash and debt crisis five years ago, won the bidding to host World Expo 2020 in November by a resounding majority with 116 votes.
From January to November, foreign institutional investors bought US$718.9 million worth of UAE shares. That figure was up from $202.9m in the same period the year before.
“It has been a phenomenal year, a number of key things happening: resurgence in confidence, property prices up – all good things,” said Saleem Khokhar, the head of equities at National Bank of Abu Dhabi. “And with the Expo, we’re in a situation where it really sets us up nicely for the next year. The market started from being undervalued on a fundamental basis to reasonably valued.”
UAE shares began the year trading between eight and nine times earnings, rising to about 12 to 13 times earnings, Mr Khokhar said.
“Compared to the Global MSCI, we are still at a 30 per cent discount,” he added.
Rashed Al Baloushi, the chief executive of the Abu Dhabi Securities Exchange, said in an interview with The National in December that he expected a stream of initial public offerings amid a recovery in asset prices and values of local shares.
Investors are awaiting fourth quarter results, when companies close out their financial year and announce dividend payment plans.
“The results are expected to outperform the third quarter, which is typically the slowest season of the year,” Mr Shurrab said. “Taking that into consideration, earnings are expected to end the year strong, which provides us positive expectations on payout ratios at least to remain on the same levels as last year – between 6 to 8 per cent.”
Brokerages, meanwhile, posted a second consecutive quarter of profitability for the period ended September 31, reversing a string of losses since the global financial crisis.
Net income for the third quarter reached Dh79.3 million for the 47 brokerages that trade on the Abu Dhabi Securities Exchange and Dubai Financial Market.
That is higher than the profit recorded in the previous quarter of Dh64.3m. Losses reached Dh48.15m in the third quarter of last year.
“Trading volumes were great compared to the past few years,” said Nabil Al Rantisi, the managing director of brokerage at Mena Corp, an investment company based in Abu Dhabi. “I think it was a mix of two things, some clients funded their accounts more and at the same time we witnessed new account openings as well.”
From 2009 to 2011, the emirate’s index lost more than 80 per cent of its value.
Investment banks, whose key businesses include equity research and brokerage services, were forced to rethink their business presence, leading to retrenchments and the closure of loss-making divisions.
There are today 47 equity brokerages operating in the UAE, down from 103 in 2010, according to the website of the financial regulator.