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09 December 2023

'Volatility may mar UAE equities earnings'

By Staff

UAE equities, battered recently due to volatility in crude prices over the last two quarters, may stay volatile until the earnings season is over, according to Richard Jablonowski, Chief Investment Officer at Emirates NBD Wealth Management.

After registering gains on Tuesday, the Dubai bourse ended in red on Wednesday, falling 1.14 per cent while Abu Dhabi exchange rose 1.3 per cent on Wednesday.

UAE bank stocks have benefited from positive earnings growth and better asset quality, and high dividend and bonus payouts should provide stability to this sector, says the Emirates NBD CIO.

Overall, GCC exchanges had a mixed performance with Saudi Arabia up 5.4 per cent for the week (on high volumes) on the back of the Capital Markets Authority head announcing last week that the opening of the Saudi exchange to qualified foreign investors was on track.

GCC bank stocks have continued to hold up: this week, Qatari banks led by Qatar National Bank outperformed other sectors. In Saudi Arabia, Samba Bank rallied 9.1 per cent on the back of a 3-for-2 bonus issue and higher dividend payout. Both stocks are part of the Dubai-based bank’s recommended holds in the GCC.

For the month, the Saudi Index is up 6.5 per cent with all sectors barring telecom positive. Mobily continues its free fall on poor results and lack of management clarity.

There was a broad reshuffle in the Saudi Arabian top government positions and there is a new CMA head, who has reconfirmed the opening of the Saudi market to foreigners. However oil (Brent) trading above $50 should keep the market stable to positive in the short term, now that the catalyst of the earnings season is over. Most of the GCC countries can withstand the impact of lower oil prices short term.

Saudi Arabia has just announced a 2-month bonus for government employees, which is positive both for sentiment and for the consumer sector (Savola, Al Hokair and Jarir) that will be the beneficiary of the increased wage spend. Although budget and current account positions could slip into deficit, low debt levels and large foreign exchange reserves defer the need to reduce domestic spending.

The Qatari market was up 1.7 per cent for the week (-3.1 per cent for the month) but on low volumes. The large caps are in the process of paying out dividends and the only catalyst in sight is a tick up in oil (or gas) prices.

GCC bond markets

US government bonds ended January 2015 on a very positive note; yields on 10-year Treasuries compressed from 2.17 to 1.63 per cent, the biggest decline in any January since 1988. Investors pushed out expectations on the next rate hike, as the US Federal Reserve (Fed) confirmed ‘patience’ would be used in considering when to start normalising policy.

Data pointing to deflationary threats in the US and particularly in the Eurozone also triggered support for developed market sovereign bonds. Yields on Germany’s 10-year bunds and UK-10 year Gilts are at 0.30 and 1.32 per cent, respectively.

Regional bonds and Sukuk continue to benefit from yield-compression overseas and from lack of local supply.

The month of January saw one transaction only in the GCC – the issuance of the Dubai Islamic Bank Tier 1 perpetual Sukuk.