MARKET IN FOCUS: UAE: Exchanges feel the pain
Solid third-quarter results have failed to stir the UAE markets, which have been quiet since the start of Ramadan and the introduction of a shortened working week. 'The timing of results was probably the worst it could be,' says Mohammed Ali Yasin, managing director of Abu Dhabi-based Emirates Securities. 'People's priority is not investment.' Low volumes and speculative activity have hampered the performance of the Dubai Financial Market (DFM) and the Abu Dhabi Securities Market (ADSM). Combined average daily turnover stood at AED 675 million ($184 million) in mid-October, less than a third of average daily trading value of AED 2,400 million ($643 million) in September. The total market capitalisation of both exchanges stood at about $168,090 million in mid-October. 'Day traders create volume, but they don't trade on fundamentals and give false indications,' says Yasin. 'They buy what they can't hold and sell at the wrong time.'
Shares in Emaar Properties, new GSM operator du and Islamic Arab Insurance Company were traded the most heavily in the second week of October. Shares in Emaar, which is expected to report profits of about AED 6,250 million ($1,701 million) for 2006, traded at AED 13.40 ($3.60) in mid-October. The company posted net profits of AED 1,605 million ($437 million) for the third quarter. With earnings per share of AED 1.04 ($0.28) and a price/earnings (PE) ratio below its historical PE range of 13-18, the stock is a solid buy, with an estimated fair value of AED 15.75-18.90 ($4.20-5.10). Other undervalued stocks include shares in First Gulf Bank, which has been trading at a PE of 10.8 and a price of AED 13 ($3.50) a share compared to an estimated fair-value price of AED 18 ($4.90). 'Some stocks are showing an upward potential of as much as 20 per cent,' says Yasin. 'The market is trading at a discount.'
But the impact of the correction that has seen the DFM index drop by more than 50 per cent year to date and the ADSM general index by a third appears to be waning. 'We are on the recovery path. We have seen the worst of the lows in July and probably won't see them again. It's going to be slow. It could take two-to-three years,' says Yasin, who concurs with the market consensus that expects to see a post-holiday rally in November. The listing of shares in Gulf Navigation Holding expected by the end of the year and the initial public offering (IPO) of shares in the DFM itself should also create some investor excitement.
Further regulatory changes are afoot. The Emirates Securities & Commodities Authority is considering raising the paid-up capital requirement for brokerages to AED 30 million ($8.2 million) to eliminate financially unsound players. It is also considering formally consulting with brokerages about future regulations and has drafted new rules that would legalise margin trading.
Solid third-quarter results have failed to stir the UAE markets, which have been quiet since the start of Ramadan and the introduction of a shortened working week. 'The timing of results was probably the worst it could be,' says Mohammed Ali Yasin, managing director of Abu Dhabi-based Emirates Securities. 'People's priority is not investment.' Low volumes and speculative activity have hampered the performance of the Dubai Financial Market (DFM) and the Abu Dhabi Securities Market (ADSM). Combined average daily turnover stood at AED 675 million ($184 million) in mid-October, less than a third of average daily trading value of AED 2,400 million ($643 million) in September. The total market capitalisation of both exchanges stood at about $168,090 million in mid-October. 'Day traders create volume, but they don't trade on fundamentals and give false indications,' says Yasin. 'They buy what they can't hold and sell at the wrong time.'
Shares in Emaar Properties, new GSM operator du and Islamic Arab Insurance Company were traded the most heavily in the second week of October. Shares in Emaar, which is expected to report profits of about AED 6,250 million ($1,701 million) for 2006, traded at AED 13.40 ($3.60) in mid-October. The company posted net profits of AED 1,605 million ($437 million) for the third quarter. With earnings per share of AED 1.04 ($0.28) and a price/earnings (PE) ratio below its historical PE range of 13-18, the stock is a solid buy, with an estimated fair value of AED 15.75-18.90 ($4.20-5.10). Other undervalued stocks include shares in First Gulf Bank, which has been trading at a PE of 10.8 and a price of AED 13 ($3.50) a share compared to an estimated fair-value price of AED 18 ($4.90). 'Some stocks are showing an upward potential of as much as 20 per cent,' says Yasin. 'The market is trading at a discount.' But the impact of the correction that has seen the DFM index drop by more than 50 per cent year to date and the ADSM general index by a third appears to be waning. 'We are on the recovery path. We have seen the worst of the lows in July and probably won't see them again. It's going to be slow. It could take two-to-three years,' says Yasin, who concurs with the market consensus that expects to see a post-holiday rally in November. The listing of shares in Gulf Navigation Holding expected by the end of the year and the initial public offering (IPO) of shares in the DFM itself should also create some investor excitement. Further regulatory changes are afoot. The Emirates Securities & Commodities Authority is considering raising the paid-up capital requirement for brokerages to AED 30 million ($8.2 million) to eliminate financially unsound players. It is also considering formally consulting with brokerages about future regulations and has drafted new rules that would legalise margin trading.This content is only available to full MEED package subscribers (MEED magazine and MEED.com).
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