Crunch time for UAE stock markets

 
Today is crunch time for the UAE stock markets – further gains will show confidence is returning, while a significant sell off would indicate they are destined to remain within their respective trading range.  Most factors point to a positive outcome – volumes have jumped markedly and global markets have stabilised, while there is growing evidence of a strong correlation between oil prices and market performance.

And since last Monday, the Dubai and Abu Dhabi Securities have increased by 2.98 and 1.42 per cent respectively. So with things looking up, many investors are expected to pump money into the markets today.

But they would be wise to be cautious, according to Ayman El Saheb, Darahem Financial Brokerage director of operations. “Investors should not expect continued gains without at least a lull or perhaps a minor correction,” he said. “Today will be decisive. If the market can hold onto its gains of last week, then it definitely can move up further.”

But Sanyalaksna Manibhandu, Emaar Saudi Financial Services head of research, offered a different perspective. “The stock market drivers in this quarter will be new highs in crude oil prices,” he said.

“Since the first quarter of 2004 there has been a good correlation between crude hitting new highs and the market going up.”

However, Manibhandu believes the long-standing inverse relationship between interest rates and stock prices is weaker than thought and has not been significant since early 2004.

Low interest rates boost equities because they enable cheap borrowing, while also deterring investors from simply keeping their money in cash at the bank and so instead are pushed to chase higher returns elsewhere, notably the stock market.

“Loose monetary policy and high oil prices should see UAE companies enjoy at least a 20 per cent growth in profits in 2008,” continued Manibhandu. Bumper first quarter results should grab the attention of international investors, Manibhandu added, particularly when Western financial institutions are announcing dire figures of their own.

Looking ahead, two triggers could spark the UAE markets into a major rally, The first will be the imminent listing of Ajman Bank on the DFM’s General Index.

 The second trigger will be the DFM’s London roadshow in late May. When the market held a similar event in May 2007, both Dubai and Abu Dhabi exchanges increased by eight to nine per cent in the immediate aftermath. Of course, the future is uncertain and  there are also clouds on the horizon.

Historically, the UAE economy has not been immune to economic slowdowns elsewhere, most recently stalling  during the global downturns of 1997 and 2001.

However, the UAE will still do much better than developed and many emerging markets, so its stocks should remain attractive for international funds.

Investors from outside the Arab region bought Dh1.2 billion worth of shares and sold Dh708.92m of shares in the trading week ended April 17, Dubai Financial Market Company (DFM) said in a statement.

 

DFM, the only listed Arab bourse, generates its revenues from trading-commission fees. Its first-quarter operating revenue almost tripled to Dh273m. Data showed non-Arab investors were the only net buyers last trading week, during which the index  rose 2.4 per cent.