UAE markets remain star performers as global peers struggle

UAE stocks remained some of the year’s star global performers last month, shrugging off turmoil hurting other developing markets.

The Dubai Financial Market General Index climbed by 25.2 per cent in the first two months of the year after finishing as the world’s second-best performing index last year. The Abu Dhabi Securities Exchange General Index rose 15.6 per cent over the same period.

In contrast, the MSCI Emerging Markets Index sagged 3.6 per cent.

In February alone, Dubai rose 11.9 per cent, Abu Dhabi gained 6.1 per cent and the MSCI Emerging Markets was up 3.1 per cent.

Analysts are trying to gauge whether the UAE markets’ current uptrend can be sustained.

A lot depends on how investors respond to the UAE’s reclassification to emerging market status by the index provider MSCI in May, said Christian Gattiker-Ericsson, the chief strategist and head of research at the private bank Julius Baer.

“This is a momentum trade and only after May will we be able see if this is getting into silly dimensions – it is possible,” he said. “This will be the first upgrade of frontier to emerging market status, so it means all the assets will be sold by frontier market trackers and will be bought by emerging market index trackers, and we can’t really tell the net effect of that. Depending on how strong that is it might lead to a completely overblown dimension at some stage.”

Last week BlackRock, the world’s biggest asset manager, said that in January it had substantially cut its UAE holdings in one of its funds, citing concern about the level of speculation in the market.

Positive sentiment has continued to surround UAE markets, buoyed by a strengthening economy and robust corporate earnings.

In contrast, other developing markets such as Turkey, Ukraine and Brazil have been buffeted by turmoil that has taken a toll on stocks and domestic currencies.

“We still see plenty of upside in UAE names,” said Jaap Meijer, the executive director of equity research at Arqaam Capital in Dubai. “We have started just to price in a normalisation. The new growth phase is not priced in, nor the potential write-backs of previously established loan loss provisions.”

Other regional markets have also remained relatively unscathed by the turmoil in emerging markets. Six of the top performing indices in the year to date were from the Middle East and North Africa, according to Emirates NBD.

Ali El Adou, the senior vice president of asset management at The National Investor, said there may be greater value for investors in other markets such as Qatar and Kuwait.

“In the short term I expect a correction in the UAE market, as valuations are becoming a bit expensive. In addition, we have seen a heavy retail presence lately in the market. This money has been focusing on tier-two names, especially in the real estate sector, for which I believe their valuations cannot be justified.”

tarnold@thenational.ae

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