Fair result for UAE after roller-coaster first half

It has been a roller coaster first half of the year for investors.

Stock markets here were initially buffeted by the economic implications of the unrest in some parts of the region and then, more recently, seen as an attractive haven for investment. At the end of the first half, the Dubai Financial Market General Index was down 8.6 per cent to 1,518.33 points, from the start of the year, and the Abu Dhabi Securities Market General Index was down 1.6 per cent to 2,704.19 points.

Today, the UAE is among the most attractively valued stock markets in the GCC, while Kuwait is the most expensive, as we head in to the second half of the year, according to Zawya.com data.

Dubai shares trade at a price-to-earnings ratio, or P/E, of 10.55 and Abu Dhabi at a P/E of 10.53, compared with a pan-GCC P/E of 13.58.

Kuwait trades at a 14.96 multiple; Saudi Arabia - the region's biggest market - trades at a P/E of 14.30; and Qatar trades at 14.16. Oman's market trades at a P/E of 10.44 and Bahrain at 10.67, Zawya says.

Yet within those broader trends, there have been individual winners and losers.

The ups

Insurance

Insurance stocks came out as defensive plays in the midst of heightened volatility. Abu Dhabi National Takaful is the highest stock performer in the country, up 152 per cent to Dh7 a share in the past six months, while Al Dhafra Insurance is the third-highest performer, up 42 per cent to Dh5.45 a share.

"When markets are down, insurance companies are considered like a deposit substitute or bond yield among local investors as they await dividend payments," said Mohammed Ali Yasin, the chief investment officer at CAPM Investment in Abu Dhabi.

Two new entrants, Wataniya Insurance and Insurance House, joined the Abu Dhabi Securities Exchange this year through initial public offerings (IPOs) that raised Dh148 million (US$40.2m).

Retail Banks

Abu Dhabi Commercial Bank (ADCB) has jumped 37 per cent to Dh3 a share, while Emirates NBD has gained 42 per cent to Dh4.15 in the past six months, after remarks from Sultan Al Suwaidi, the Central Bank Governor, suggested the industry should jump-start lending after a cautious couple of years during the financial crisis.

After Central Bank data showed deposits reached Dh1.12 trillion in April, up 16 per cent from the same period last year, investors are anticipating bigger profits in the second half of the year. These two banks emerged as value stocks this year. ADCB also offloaded its 25 per cent stake in Malaysia's RHB Capital to Aabar Investments last month, for 5.9 billion Malaysian ringgit (Dh7.19bn) , a gain of 50 per cent after owning the stake for three years.

Telecoms

Etisalat and du have both made decent gains in the past six months as they competed against one another in a saturated mobile market.

Shares of Etisalat are up almost 2.8 per cent to Dh11.10, while du is up 4.7 per cent to Dh3.11. It will be difficult for the companies to continue growing, however.

According to Fitch Ratings, the UAE mobile market is now mature, with mobile penetration rate exceeding 200 per cent. The ratings agency also said organic growth for Etisalat's international operations was likely to be offset by declines in the domestic market.

Bottlers

Dubai Refreshments, the bottler and distributor of Pepsi products in Dubai and the Northern Emirates, is up 126 per cent this year to Dh10.05. It is not hard to see why: the company in January raised the price of a can of fizzy drinks for the first time in 20 years.

ETF

Despite low trading volumes, NBAD's one-share exchange traded fund (ETF) provided investors with a hedge from the volatility in the market following the unrest in parts of the region.

The fund is up 4.4 per cent this year to Dh4.99 a share, outperforming both of the main local bourses.

"The ETF has performed well due to the diversification of underlying holdings but with a focus on market cap and liquidity," said Saleem Khokhar, the head of equities at National Bank of Abu Dhabi.

The one-share ETF trades at a price-to-earning ratio of 10.05 and has a dividend yield of 2.8 per cent.

The downs

Property

Civil unrest spurred project cancellations in Syria, Egypt and elsewhere in parts of the wider region. Closer to home, property markets are forecast to remain slow for some time.

Emaar Properties, based in Dubai, is down almost 15 per cent to Dh3.02 since January, while Abu Dhabi's Aldar Properties is down more than 47 per cent to Dh1.24. Arkan Building Materials, an Abu Dhabi-listed cement producer, is down 27 per cent to Dh1.28.

"While the first quarter was slow because of political uncertainty, we're assuming that the next quarters will bring a sense of going back to normalcy, but they will probably still be down year-on-year," said Majed Azzam, an analyst at Alembic HC Securities in Dubai. There is hope: some believe the change to the UAE's visa law late last month will help to drain excess supply from the market.

Fish farms

The International Fish Farming Company, also known as Asmak and based in Abu Dhabi, started up with a vision to develop an integrated seafood business with regional and international participation.

But the company ceased its fish-farming business after stocks were devastated by so-called red tides, which are epidemics of oxygen-depleting algae in the sea.

It then bought Abu Dhabi Land General Contracting Group in February as it shifted gears to focus on the property industry.

"Asmak, when it had started out, sounded like a great idea, but the company's vision has not really materialised," said Mr Yasin.

The stock, trading at Dh5.10, is down 36 per cent since the beginning of the year.

Investment banking

Shuaa Capital is the UAE's largest investment bank, which managed the $5bn IPO of the Dubai ports operator DP World in 2007. The bank has not had much luck at taking companies public since, with the Dubai retailer Axiom cancelling its listing the day before it was due to debut on the Nasdaq Dubai exchange in December.

Shuaa's brokerage activities have also declined. Volumes on traded equities in the country are at Dh36bn, almost half of what they were this time last year, as foreign investors sold shares of regional companies during the unrest in parts of the region.

The bank registered a loss of Dh26.3m in the first quarter of this year and said it would lay off 39 staff to cut costs.

Shares of the investment bank are down 26.6 per cent to 94 fils since January.

Dana Gas

Dana Gas was hit hard by the Egyptian revolution that forced out the president Hosni Mubarak as the country is the site of the majority of the company's production. Making matters worse, investors have become weary of the UAE gas explorer and producer's ability to collect its receivables from Iraq. The Kurdish regional government and the Iraq central government are in a long-running dispute about whether Kurdish gas export contracts are legal.

Dana's shares have lost 21 per cent since January to 61 fils, and were recently downgraded to "neutral" by experts at Nomura, the Japanese investment bank.

"We are not clear on the outlook for Dana Gas," said Scott Darling, an analyst with the lender. "With Egypt and Kurdistan receivables delayed or unresolved … we are increasingly cautious on the company's ability to manage its internal liquidity."

Tabreed

Air conditioning and district cooling is a necessity in the UAE, given its geography and climate, but shares of the indebted Tabreed declined 41.5 per cent to Dh1.03 in the past six months. The company posted a 21 per cent decline in profits to Dh31.9m for the first quarter in May but said it was confident it would meet its financial obligations.

The company reached an accord with creditors in February to refinance Dh2.63bn in debt through an injection of funds by Mubadala Development, a strategic investment company owned by the Abu Dhabi Government. Tabreed appointed Waleed Al Mokarrab Al Muhairi, the chief operating officer of Mubadala, as its new chairman in May following the debt restructuring.

halsayegh@thenational.ae