PC: Khaleej Times
Dubai Financial Market Sees Strongest Quarter Since 2014
There was a rally in Dubai’s stock market, sending the benchmark into the best ranks of the world’s best-performing equity markets. The Dubai Financial Market General Index increased 12% for its highest performance since 2014 and ranked within the top 10 of the best-performing equity benchmarks worldwide.
Key players in these markets are the banking industry Majid Al Futtaim’s closest rival, Emirates NBD Bank PJSC; Salik Co PJSC, operator of toll roads; and utilities provider Dubai Electricity & Water Authority PJSC. Dubai’s growing economy and ballooning population point to their success. Regional peers Abu Dhabi and Riyadh continue to rely heavily on oil prices, which, unlike Dubai, translates into major drivers for tourism and a thriving real estate market, good enough drivers to generate real returns from its stock market. That, together with the relative imperviousness of the market to oil price shocks, continues to fuel upward momentum; positive earnings news hasn’t impeded the ride.
Caution on Valuations and Geopolitical Risks
Even as the stock market indices continued their strong run, analysts warn that Dubai stocks could be nearing peak levels of valuations. “Dubai stocks may now be more sensitive to any setbacks than further good news,” said Hasnain Malik, emerging market equity strategist at Tellimer in Dubai. While increasing property prices and tourist arrivals have contributed to the rally in prices, investors might now become more cautious.
He said the overall macroeconomic environment in Dubai remains stable but has altered the risk-reward ratio for stocks. Higher valuations mean that the margin for further gains may be very limited, particularly if geopolitical risks continue rising in the wider Middle East region.
Strategic thinkers at HSBC Holdings Plc, including John Lomax, also became more cautious. They downgraded the nation’s equities in the UAE and Saudi Arabia to neutral from overweight, in view of geopolitical tensions and low oil prices that may resist its future performance. “We love the structural story, but a combination of heightened geopolitical risk and low oil prices is creating near-term headwinds,” they said in a note.
Regional Stock Market Performance
It is not just Dubai that has experienced a boom in the last few months. The Abu Dhabi Stock Market has gained 5% for the quarter, its best quarterly performance since March of last year. Tadawul All Share Index is up 6% in Saudi Arabia, which has been the best quarter so far during this year. But from July, Dubai has been gaining on these regional exchanges.
Stock prices across the Middle East have increased, despite concerns over potential escalations in conflicts within the region having grown of late. Investors have thus far remained focused on economic fundamentals driving these markets.
Future Outlook: Opportunities and Risks
Some investors still look at Dubai’s stock market optimistically, even if it is a pricey affair. “I don’t believe the valuations are stretched yet,” says Divye Arora, heading portfolio management at Daman Investment Psc in Dubai. “With bond yields falling, the best-known names in Dubai continue to offer very attractive dividend yields, especially with yields expected to move above 5% by 2025,” he said.
The Dubai Financial Market General Index now trades at 8.6 times forward earnings, still well below its decade average of 9.2 times. The index has been trading at these levels after it hit lows in 2020 but less than what it used to be during most of the past decade. According to Arora, among the reasons why the market may soar include Salik, Dubai Taxi Co., Tecom Group PJSC, Emaar Properties PJSC, Emaar Development PJSC, and Emirates Central Cooling Systems Corporation.
With bond yields continuing low, many analysts say that stocks of Dubai will continue to remain an attractive source of returns even as geopolitical risks continue their ascent. But with valuations already at fairly high levels and risks going the other way, the performance in the coming months could depend on the playing out of these factors.
