Now is the time for UAE stock markets

Shuaa Capital is confident that 2004 could be the year when the UAE’s capital markets fulfill their potential.

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By  David Ingham Published  January 8, 2004

Shuaa Capital, the investment and brokerage firm, is tipping the UAE stock market to be a strong performer in 2004. The UAE lagged behind Saudi Arabia and Kuwait in 2003, but Iyad Duwaji, managing director of Shuaa, sees potential waiting to be unlocked. “We believe the markets of Saudi and Kuwait to be fully valued at present. Therefore, we would not expect to see a repeat of the very strong performance that we’ve seen in 2003,” he says. “Having said that, we continue to believe that some of the other markets that have not performed as well, especially the UAE, have plenty of upside potential. We’re expecting earnings growth north of 10% and the market is trading at a relatively low fifteen times 2003 forward earnings.” The Shuaa Capital UAE General Index rose around 30% in 2003, starting at around 1075 in January and reaching 1450 by mid December when this report was compiled. However, Saudi Arabia’s stock market surged from a low of around 2450 in the early months of the year to end the year at the 4450 mark. Kuwait’s market practically doubled in 2003, from around 2300 in January to 4600 in late December. A sign of Shuaa’s faith that the UAE stock market can enjoy a similarly fruitful 2004 was shown by its recent purchase of a 5.7% stake in Emaar Properties on behalf of Kuwaiti investors. The transaction was worth Dhs375 million based on the share’s price on the Dubai Financial Market. Amongst the factors that make the stock attractive are anticipated 2004 earnings growth of 10%, a price that is just eight times 2004’s projected earnings and a dividend yield of around 5%. “On a PE, on a dividend yield, on underlying value, everything was clear that this is a stock that was 30% undervalued,” says Duwaji. Dubai’s stated desire to bring more foreign capital into its stock exchange is seen by Duwaji and Gulfinvest, a partner in the Emaar transaction, as good reason to be optimistic that the market has upside potential. “Our investment in Emaar is a proxy investment in Dubai, one of the most promising markets in the Gulf and the Middle East, and its ambitious plans to add new sectors such as media, finance and healthcare to its growing economic base,” says Abdul Salam Al Awadi, vice chairman, Gulfinvest. “Dubai has proven itself many times in its ability to meet its stated objectives and today Dubai’s plans call for 8-10% growth over the coming few years with the city growing to accommodate up to two million inhabitants as part its 2010 vision plan,” he continues. “Currently, UAE law allows for a 49% foreign ownership in publicly held companies. However, many of those companies impose further restrictions in their articles. We look forward to other UAE companies opening up their capital to non UAE shareholding,” adds Duwaji. Duwaji agrees that the UAE market has suffered from the perception that transparency is lacking. To that end, the company is increasing the amount of market research that it publishes. “We do a lot of homework, we look more closely than others and we are going to start publishing, in 2004, equity research for the benefit of the market,” explains Duwaji. “We have reports coming out on Abu Dhabi National Bank, Tabreed and Emaar. If you look at the market as a whole, there aren’t a lot of professional organisations and fund managers doing what we are doing and there is no foreign participation. You need the professional managers and the outside investors.”

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