Regional stocks start to recover after falls

After nearly a year of decline, most Gulf stock markets staged a dramatic recovery in August, according to latest figures released last week.

  • E-Mail
By  Alexandra Dubsky Published  September 10, 2006

After nearly a year of decline, most Gulf stock markets staged a dramatic recovery in August, according to latest figures released last week. Dubai leads the way with the DMF index peaking at 12.6%. Trading volumes and gains were very much concentrated on market leader Emaar, which represented some 70% of total trading volumes on some days. “Since the Dubai market has lost about 50% of its value since February it is now a great time to buy. The positive upwards trend is likely to continue for about two more weeks, after that the markets will probably slow down little at the beginning of Ramadan. It is then likely to pick up again after the Al Aid holiday and will probably remain strong throughout Q4 until the end of the year,” Yosef Mustaffa, an independent broker at the DFM, told Arabian Business. “Various sectors are outperforming others, such as the banking and service sectors, which have been both experiencing hikes,” Mustaffa says. “I expect Emaar and the Dubai Islamic Bank to show convincing performances. As Emaar is going to publish some very strong results towards the end of the year the market will surely respond to that.” The Abu Dhabi market lagged the Dubai market in terms of trading volumes and price appreciation as investors favoured stocks such as Emmar and Amlak over Abu Dhabi listed stocks. An analysis of first half 2006 corporate profit releases shows that profits on the whole grew by a meagre 3% over the same period last year. The largest GCC market, Saudi Arabia, was up 2.4% during the month of August. This market remains very much a speculators market as price and trading volume gains were led by speculative agricultural stocks, Rasmala Investment states. The IPO schedule continues to be heavy and most IPOs continue to be over-subscribed as market participants see quicker profit making opportunities in the primary market. Emaar Economic City’s IPO was oversubscribed by 2.8 times, as 10 million Saudis subscribed for US$1.9bn worth of shares. The Saudi Capital Market Authority has been taking quiet steps to introduce further transparency to the market with regards to corporate governance and disclosures, and this has gone some way towards adding some stability to the market, which remains speculator driven. The Kuwaiti market recovered well after having reached a year to date low and is up 2.6% as banking and investment sector stocks gave support to the market. First half corporate profit releases were generally negative however, which is leading to trading volumes remaining weak, frequent bouts of profit-taking thus preventing the market from making sustainable gains despite its attractive valuations and positive fundamentals. Corporate profits in the real estate and investment sectors are being negatively affected by the downturn in the capital markets, while the banking and service sectors showed profit growth. The Omani market gained 7.7% with trading volumes increasing by over 40% as local and foreign investors appeared to suddenly realize that this market is one of the cheapest in the region. Banking and insurance companies continue to attract most of the activity in the market. The Omani market remains one of the most attractively valued regional markets but a lack of depth and liquidity has often prevented it from realizing its full potential. Its defensive qualities have nevertheless allowed it to avoid the earlier huge losses of some of its more volatile regional peers and it remains a reasonable market for investors. Qatar proved an exception to the rule, with stocks down 2.2% during the month of August as profit-taking in the last few days of the month erased earlier gains. Rayan Bank and Gulf Cement remained the most traded stocks, followed by Nakilat, but trading volumes remain very volatile and the market remains at a relatively early stage of development in terms of depth and investor sophistication. First half corporate profit releases indicate over 32% growth year on year and importantly, this growth seems to be coming from core operations, which is considered a good sign. Current valuations of around 16 to 18 times earnings overall make the market reasonably well valued, but some companies continue to trade at unjustifiable multiples and should be avoided.

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code