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- Dubai 05:26 06:45 12:11 15:10 17:32 18:50
After reporting double-digit growth in a turbulent year like 2009, the UAE stock markets are expected to see further gains in 2010.
The telecom, transportation and utilities sectors are all expected to receive fresh investment during the year giving an additional boost to the market, which is already on a positive note following the higher price targets for heavyweights such as Emaar.
However, in the backdrop of prevailing uncertainty, 2008 annual results will set the tone for the first quarter trading, said experts.
Fadi Al Said, Head of Mena Equities at ING Investment, told Emirates Business: "Uncertainty continues to prevail. Annual results of the year 2009 will be announced in January and that will pave the way for the next heading of the market.
"Companies continue to operate under pressure.
"However, timely repayment of dues or debts will be viewed positively by the market. Considering the general trading pattern on the Dubai Financial Market (DFM) most of the time, it will be a continuation of the trend in the previous year's last quarter. Trading in the first quarter will follow the prevailing trend in the previous quarter, i.e. the last quarter of the previous year." The first quarter of 2009 was weak, reflecting the bleak trading in the fourth quarter of 2008.
In line with that, the first quarter trading of 2008 was strong as it was positive in the fourth quarter of 2007. Going by the historical trading pattern, the fourth quarter of 2009 ended on a positive note, though it shed some of its early gains made in October.
Wadah Al Taha, a senior financial analyst, said: "I expect that market to have an increase of 25 per cent in volume and value this year on improved liquidity.
"Hopefully, we will not get any complications this year and a clear recovery can be seen on the DFM in the second half of this year as the liquidity gap narrows down before the end of the first half. Institutions will have limited exposure to banking stocks. The first quarter of this year will have liquidity, which will boost the market sentiment."
Al Said said: "It's too early to say anything now and really unclear to predict the market direction. Abu Dhabi is in a stronger fiscal position, but the Abu Dhabi Securities Exchange (ADX) and the DFM have a high correlation. Fundamentally, ADX-listed companies are strong. Moreover, the attitude of foreign investors and institutions is very important as they look at valuations.
"A few sectors, such as real estate, will benefit from the recovery. Emaar, Aldar, Sorouh and Union Properties are likely to gain.
"Most banks have same conditions and, comparatively, ADX banks are in a better position. With a strong capital base, NBAD is attractive. Aramex and Air Arabia are also in attractive positions. If one wants to invest in low liquidity stocks, RAK Ceramics is attractive." Al Taha said: "Realty stocks will be under pressure as Dubai based companies are likely to continue subdued, while Abu Dhabi based companies will perform better compared with their peers. The additional availability of new units this year will put some sort of pressure on realty stocks, but it does not mean the market will behave in a volatile way. Emaar is in a better position when compared to Nakheel. The telecom sector is expected to perform well this year, followed by the services segment."
The telecom, transportation and utilities sectors are expected to garner good buying support, as they are attractive at low prices. Moreover, dividends can be expected from cash rich companies, said analysts.
"After its stabilisation last year, the DFM is now expected to move higher and will be stock specific. Investments could flow in again in the telecom, transportation and utilities sectors," said Shiv Prakash, senior technical analyst at MAC Capital.
The UAE bourses have been identified for inclusion this year in a league of stock exchanges including such bourses as the Indian, Russian and Chinese ones. The FTSE Group, a provider of global indices, took the decision in 2009 to promote the country to an emerging market from a frontier one.
International funds follow these global indices and trillions of dollars are invested as per the classifications provided by these index providers, as these indices are the benchmarks to evaluate performance.
The upgrade to emerging market status will result in an increase in liquidity on the stock exchange, said analysts. In its annual review of country classifications in September 2009, the FTSE group said it decided to demote Argentina to a frontier market and the crisis-hit Iceland would be dropped from its indices altogether.
The southern European island state of Malta was added as a frontier market. According to the group, the reclassification will take effect in September 2010.
However, the widely benchmarked indices in the emerging markets are provided by the MSCI, which still classifies the UAE as a frontier market.
In its annual review in June 2009, MSCI cited reasons such as restrictions on foreign ownership of local companies and lack of separation between custody and trading accounts.
Owing to these factors, MSCI took its decision not to reclassify the country as an emerging market. However, MSCI said it would revisit the decision in June 2010.
"If MSCI adds UAE the markets to the emerging markets basket, this would influence foreign investors and the local bourses will get more investment activity," said Al Said.
Market analysts are expecting cash dividends this year, which will push the markets higher in the second half. Air Arabia, Arabtec, Aramex, Aldar and Dana Gas stocks are the top choices, according to an analysis done by Shiv Prakash, who expects dividends from Air Arabia.
"In mid-2009, when the markets bounced higher, these were the sectors which gaining the most from their lows. Markets are also expected to see some gains at the start of 2010, as companies are going to announce dividends," he said.
Air Arabia is a low-cost carrier operating a total fleet of 20 Airbus A320 aircraft and serving 44 destinations within the Middle East, North Africa, Europe and the Sub-continent.
Air Arabia's highly anticipated third hub will provide a strong link between the existing Moroccan and Sharjah hubs. The location, in Egypt, also opens up routes to Eastern and Continental Europe, as well as providing capacity for Northern Africa and the former Soviet Union.
FY-10 earnings are likely to improve as global growth looks to stabilise and the Moroccan hub begins to contribute to earnings.
"On Technical charts, the stock has a rock bottom supports near Dh0.80 and, despite massive sell-off in the last few weeks, the stock did not break below the range.
There's a good opportunity to buy with the higher targets of Dh1.00/1.15 in the coming months.
Air Arabia can also pay a dividend of up to Dh0.08 per share for FY10 or nine per cent yield on current prices," said Shiv Prakash.
Aldar Properties is the largest master developer in Abu Dhabi. Aldar's share price has rallied strongly from lows of Dh1.93 to the recent highs of Dh6.53, largely on the back of improving market sentiment.
With Abu Dhabi continuing investing in the development and modernisation of the city despite the current economic downturn, property shares are likely to witness good buying support.
"Aldar Properties, with its close government ties and a high share of Abu Dhabi-based projects, plays an integral role in planning and development within the emirate. Thus, one can invest in the long-term growth story of Aldar," said Shiv Prakash.
"On the technical charts, the stock has a good support near Dh4.80/4.40 where some accumulation can be seen. A breakout on the trend line resistance of Dh5.45 can trigger an upward rally until Dh7.00/8.50 in the coming months."
As the dust settles, few companies are going to stand out this year but Aramex, the Middle East's largest courier company, is attractive at present levels.
Aramex is trading in the higher range and has had no effect from the sharp fall in the markets seen in the recent past. This indicates strength in the stock.
"Any rise in the markets can trigger a fresh upward rally until the higher target levels of Dh2.50 in the coming months. The strong support level comes at Dh1.40 and the immediate resistance comes at Dh1.80.
The stock can also be expected to return a dividend of Dh0.046 per share and there is an expectation of good earning growth for FY-10," said Shiv Prakash.
"Arabtec has seen good recovery from the Jan 2009 lows of Dh0.78 until the highs of Dh3.78. The stock is trading near Dh2.66 and holds good potential for further appreciation in FY-10.
If we see any close above Dh3.10 the stock could experience another rally until the highs of Dh4.50 in the coming months. Strong supports for the stock comes at Dh2.15 where some accumulation can be seen."
Another major stock from the energy sector on the ADX is Dana Gas, which holds good growth potential in the months to come.
"Dana Gas is doing well in oil exploration, with good support indicators in the range of Dh0.85 to Dh0.90 levels. It could have a good bounce in the coming sessions until Dh1.05/1.30 in 2010," said Shiv Prakash.
NBK Capital in December 2009 upgraded DP World to 'buy' from 'hold', as the global major in port operations doesn't require any financial support from shareholders.
After being flat during the first half of 2009, DP World shares were active in the second half and closed on a positive note. The stock closed at $0.430 on December 31, 2009, and was trading lower than in September, October and November 2009.
The port operator has a good $3.1 billion (Dh11.3bn) cash reserve and its debt maturity schedules are well dispersed – its first repayment is due in 2010.
The restructuring plan of Dubai World will result in long-term investing opportunities for investors. The drop in container volumes is expected to bottom out soon.
The UAE's largest telecom operator, Emirates Telecom Corporation's (etisalat) stock is attractive after falling to its cheapest in mid-2009.
The stock closed the year 2009 at Dh11.05. It touched the year's high of Dh13.85 in March and the year's low of Dh9.95 in April and May.
Considering its present level, the stock is likely to record a whopping gain of 60 per cent this year, forecast some analysts.
The telecom major has been valued at 9.4 times profits, the cheapest in the four months. The cash rich company has an excellent market share and a diversified global portfolio.
Air Arabia, Dubai Financial Market (DFM), National Bank of Abu Dhabi (NBAD), RAK Cement (RAKCC) and First Gulf Bank (FGB) topped the list of potential companies that made attractive annualised cash gains during the year 2009, according to a study done by MAC Capital Advisors.
"Air Arabia, DFM, NBAD, RAKCC, FGB and, potentially, Aramex and Agthia are also trading well below our 12-month share price targets. DFM, Agthia, Air Arabia and Aramex are creating a strong fundamental buying case in addition to the likely dividend. Air Arabia will have the capacity to pay up Dh0.07-0.08 per share for FY-10, or a seven to eight per cent yield on current prices," said the report.
Eyes on Emaar
Retail investors are keen on Emaar's stock price movement in the New Year, as the DFM index is highly correlated to it. The property major has more than a 16 per cent index weightage, which is higher than any other scrip.
Analysts hold a positive outlook for Emaar, as the stock has turned out to be fundamentally stronger following its withdrawal from the merger with two units of Dubai Holding.
HC Brokerage has retained its 'Buy' recommendation on Emaar considering key factors such as growth in overseas business and a comfortable liquidity position.
The brokerage firm also holds a target price of Dh6.5, an upside growth potential of 68.39 per cent as against the close of Dh3.86 on the DFM on December 31, 2008.
"We reiterate our buy recommendation on Emaar and our target price of Dh6.5 per share. We value real estate companies using a combination of DCF and land valuation. Where the company has a final master plan, we use a DCF. Otherwise, we use land valuation only. To be conservative, we exclude future projects from our model until further clarity. We value Emaar at a 45 per cent discount to its NAV of Dh11.7," said the report by HC Brokerage.
Emaar's overseas exposure is further supportive of valuations as the overseas business doubled this year.
"We estimate overall contribution from international business has almost doubled from 27 per cent at the beginning of last year to 45 per cent," said the report.
2000-level in sight
Despite, adverse conditions in the global economy, the UAE bourses managed to end the year 2009 with double-digit gains.
The DFM recorded 10.10 per cent gains and closed the year at 1,803.58 points.
"The DFM general index has an immediate resistance near 1,880/2,048 points. If the market manages to close above it we can expect a rapid rise until the next resistance level of 2,331/2,860 points for FY10. Lower support exists at the 1,480/1,350-point levels. The first month of the year is expected to witness a sharp rally that can push the DFM index above 2,000 points," said Shiv Prakash.
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