MARKET IN FOCUS: UAE: Hopes rise for the new year

The new year on the UAE bourses got off to an inauspicious start when the Emirates Securities & Commodities Authority (ESCA) banned two brokerages from trading. The action sounds yet another sour note in the chorus of negative sentiment that has undermined trading on the federation's two bourses. 'It's not a happy beginning to the year,' says Emirates Securities managing director Mohammed Ali Yasin.

Al-Safwa Islamic Financial Services and Golden Gate Securities were barred from carrying out stock transactions for non-compliance with settlement regulations. ESCA has also sent letters to four other companies asking them to show by 11 January that they comply with regulations. The regulator has warned a further 17 to meet

their licensing requirements by early February.

It is the latest in a series of ESCA moves to weed out unscrupulous or small market participants, whose actions destabilise the bourses. Other measures include raising the capital requirement for brokerages and future regulations to govern margin trading and limit lending.

'The market authorities are watching these companies and know who the weaker ones are and are trying to bring them under control,' says Yasin. The correction during 2006 has seen the Dubai Financial Market (DFM) lose more than 60 per cent of its value. The Abu Dhabi Securities Market (ADSM) index has also dropped by a third.

However, brokers, analysts and fund managers are optimistic about the UAE bourses.

'Most people are quite bullish about 2007,' says Shuaa Capital analyst Ahmed Shahin. 'We are looking at prices, which are very attractive, and the whole economic story.'

With few surprises expected when fourth-quarter results are reported in the coming months and average price/earnings ratios of 10-11 for blue-chip stocks, the UAE markets display attractive buys to discerning investors.

The banking sector is expected to report year-on-year profit growth of 20 per cent despite banks' exposure to falling markets. And market pillar Emaar Properties is expected to report strong first-quarter profits as revenues from the Burj Dubai development are included for the first time. 'First-quarter results are essential,' says Yasin. 'If companies can show an improvement on 2006, it should be a good year for the markets.'

Both the DFM and ADSM will receive a boost as fund managers rebalance their portfolios. Their interest will inject additional liquidity into the markets that on 3 January saw turnover of AED 166 million ($45 million) on the DFM and AED 42.2 million ($11.4 million) on the ADSM. 'Institutional investors are coming in,' says Shahin. 'They are accumulating and are willing to wait for returns.' The listing of shares in Gulf Navigation Holding and the DFM itself scheduled for the end of the month will stir investor interest. But a full recovery is not expected to start until the second half of the year, pushing the indexes to a positive close in 12 months.