Emerging markets upgrade may be next spark for UAE stocks

UAE markets will be looking for a new buying catalyst this week after a long-anticipated correction.

The Abu Dhabi Securities Exchange and Dubai Financial Market benchmarks each lost 2.5 per cent last week as investors booked profits after a 12-month bull market.

“This correction made prices more moderate and attractive as an entry point,” said Wadah Al Taha, the chief investment officer at Abu Dhabi-based Al Zarooni Group.

That could tempt institutions back into the market.

“The dip had to happen, but markets are still solid and the economy is growing,” said Nabil Rantisi, the managing director of brokerage at Mena Corp, an Abu Dhabi-based investment company. “We need some momentum to create another hype and catalyst.”

That trigger may be the admission of locally listed companies in May to the emerging-markets index of MSCI.

A report by EFG-Hermes, the region’s biggest publicly listed investment bank, predicts that it could attract US$516 million of new money to UAE equities.

The ADX General Index has risen 32 per cent since the international index provider in June upgraded the UAE and its equities to emerging markets from its previous frontier-markets designation. The DFM General Index has rocketed 65 per cent in the same period.

“The imminent inclusion of the benchmark is attracting many funds that are allocated to emerging markets,” Mr Al Taha said.

Already the surge in liquidity and asset values is encouraging private joint stock companies to sell their shares and seek listings on the country’s bourses.

NBAD’s head of securities, Majd Maaiteh, predicted as much as $8 billion worth of initial public offerings in the pipeline this year.

The surge has benefited the brokerage industry, which relies largely on income from trading stocks. It is in the black for the first time since the global financial crisis.

Brokerages swung to a profit of Dh310.7m last year from a loss of Dh98.2m in 2012, according to financial statements posted on the market regulator’s website.

There are 49 brokerages operating in the UAE, down from a peak of 103 in 2010.

Al Ramz Securities, which was ranked first by traded value on the Dubai Financial Market in February, registered a profit of Dh49.88m last year, from a loss of Dh2.68m in 2012.

Mena Corp, ranked second, recorded income of Dh29.6m from a loss of Dh5.2m.

NBAD Securities, ranked third, registered a profit of Dh22.8m, compared with a loss of Dh17.7m the year previous.

“Market volumes are still there,” Mr Rantisi said. “Most of the companies will keep on making money. But we really need to diversify away from one brokerage revenue to 10 revenues, and hedge ourselves away from any downturn. This is going to come sooner or later – we saw it in 1999 and then in 2009, and surely it’ll come back and haunt us.”

halsayegh@thenational.ae

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