JEDDAH, 11 October 2004 — Buoyed by the overall upturn and feel good factor, equity markets in the UAE had been on their way up in 2003, and the first half of 2004. Total market capitalization of 49 listed companies, including both Abu Dhabi Securities Market (ADSM) and Dubai Financial Market (DFM), peaked at $58.24 billion on Aug. 12, 2004. UAE’s market cap formed 14.3 percent of the total market cap of $407 billion in GCC at the end of August. Shaking away the slightly subdued phase in the period 1998-2002, UAE market came up with good performance in 2003, yielding 24.2 percent returns. This was followed by year to date return of 47.6 percent in 2004, as measured by the NBAD Emirates stock market index, according to a Kuwait-based Global Investment House (GIH) report released here recently.
UAE market was not isolated in this good show, which has been ubiquitous among all the GCC countries except Kuwait, which gave just 3 percent returns in the first seven months of this year. In the same period, returns in the UAE were 30.3 percent, which were lower than that in Saudi Arabia and Qatar, which yielded 39.2 percent and 38.9 percent respectively. After a prolonged bearish phase from 1998-2002, UAE market was aided by the huge funds that flowed from other countries in the region, especially Saudi Arabia and Kuwait, more so in the recent times. Also there were rumors that several high net worth individuals have started bringing back the funds, which were parked in developed markets in the West.
Sectorwise Performance: Looking at the sectors, which led to the growth, it can be seen that there has been an all-round appreciation in market cap. However, the largest contributor to the growth in market cap was the banking sector, which was more or less in line with the overall growth, both in 2003 and in 2004. Banks came up with excellent corporate performances, owed to the substantial jump in their non-interest income. While banking made the largest impact, industrial sector had the highest growth of market cap, though from a very low base, which was an upshot of the robust oil economy, and also the listing of large companies like RAK Ceramics Company and RAK Cement Company in the last two years. Share prices of other cement companies too saw major appreciations, thanks to the shooting up of the cement prices. Services sector underperformed the overall growth, as the sector had a modest year in 2003, mainly owed to the concerns in Iraq. A decline in the share price of Etisalat, after the government’s announcement to take away its monopoly also had a bearing on the overall growth of the sector lately. Given below are the movements in market cap across sectors, which include all local companies listed in ADSM and DFM.
Corporate Performance: The increase in market cap has been an apt reflection of the UAE corporate performance, with overall profits growing at 20 percent in 2003 and further by 31 percent in the first half of this year. All the sectors recorded good growth, with the industrial and real estate sectors standing out.
Liquidity: As in the case of banks, improved liquidity in the market helped price discovery, and thus bolstered the valuations of a number of stocks. Trading has picked up at a fast rate in DFM in the last few months, owing to a few of the new listings, and also the increased interest in many of the stocks in the services sector. ADSM did not fall behind either, as volumes in 2003 were almost four times of that in the previous year. The increase in volume and value traded were most apparent in the services and industrial sectors. Volume of shares traded in the services sector in the first half of this year was about eight times the volume traded in the whole of 2002. Currently, this sector alone accounts for 70 percent of the total volumes of 1.39 billion shares traded in the first half of this year, followed by industrial sector (16 percent) and banking sector (13 percent).
Going Forward: With a booming market, and higher volumes being traded, IPO market in the UAE can be expected to expand at a rapid rate. There are as many as nine new issues in the pipeline, according to news reports. A major one in the offing is Arab Technical Construction Company (Arabtec), a contracting firm, which plans to issue shares worth AED220 million. Also, there is speculation about the shares in Dubai-based carrier Emirates and Dubai Aluminum Company coming to the market by the end of this year.
Listing of newer companies and the consequent increase in investor interest, supported by a benign economy are expected to drive the stock market further up in the UAE.
