The UAE, like other Gulf markets, has seen equity prices and trading activity surge in the past six months. Turnover at the Abu Dhabi Securities Market (ADSM) in August, traditionally a quiet month for regional bourses, tipped $545 million – a more-than threefold increase on the total combined value of turnover recorded at the ADSM and Dubai Financial Market in February. Total combined turnover for the two bourses in August reached $873 million.
The allure of UAE stocks has been heightened by a number of factors, both domestic and international. While share prices in the UAE did not benefit to the same extent as those in Kuwait from the impact of the war in Iraq, the fall of Saddam Hussein’s regime has had a significant impact on the perceived stability of the Gulf, encouraging investors to return to the region with renewed vigour.
Equally important has been the flood of available liquidity. Sustained high oil prices have reduced the need for public borrowing, freeing up funds for private sector investment and low interest rates have reduced the attraction of other outlets.
‘The monetary easing in the US has had an important impact on UAE shares,’ says Walid Shihabi, senior equity analyst at Dubai-based Shuaa Capital. ‘With interest rates as low as they are at the moment in the US, Gulf stocks are a very attractive alternative investment proposition.’
Given the meteoric rise of the other GCC bourses, there is a strong possibility that UAE stocks will continue to thrive well into the start of next year. ‘The UAE is traditionally a laggard when it comes to regional market performance,’ says Shihabi. ‘Trends are established in the larger markets of Kuwait and Saudi Arabia and the UAE tends to follow suit, but in a slightly removed time-frame.’
Liquidity and momentum are pointing upwards, and on a valuation basis there is still plenty of potential for UAE stocks. ‘The fundamental picture of listed companies in the UAE remains very sound,’ says Shihabi. ‘Growth rates for 2003 are set to exceed those of 2002, which were themselves very good. We anticipate the UAE Shuaa index closing the year up 10-12 per cent on current levels.’ The areas to watch will most likely be the banking and real estate sectors.
Exchange rate: $1=AED 3.67