Stimulus to support UAE markets in 2019, analysts say

The Dh50 billion economic stimulus unveiled by Abu Dhabi Government in June is expected to buoy UAE markets next year, with positive implications for corporate earnings even as global markets remain volatile, analysts said.

"2019 will be a tricky year as international markets heat up and the ongoing diversion in US economic policy creates higher volatility and uncertainty to capital markets going forward," Tariq Qaqish, managing director, asset management, at securities broker Menacorp Finance, told The National.

“Luckily, the UAE market is trading at huge discounts compared to regional and emerging markets and globally, so the downside effect will be limited. At the same time, the UAE government announced higher spending into the economy in 2019 which will support the business environment and gain more investor trust.”

Sheikh Mohammed bin Zayed, the Crown Prince of Abu Dhabi, announced a massive stimulus package for the emirate in June, aimed at supporting entrepreneurs, small and medium-sized businesses, and the private sector by bolstering growth, attracting more foreign direct investment and creating jobs.

The Dh50bn package, which takes effect from next year, is likely to help UAE markets perform better than they did in 2018 as it begins positively impacting the economy.

Like other regional and global markets, the UAE faced challenges in 2018 from macroeconomic issues such as uncertainty around oil prices – which slumped in 2014 to below $30 per barrel in the first quarter of 2016, then buoyed earlier this year to above $80, only to dip once more to around $53 this month – as well as trade tensions between the US and China and in other regions, and currency volatility in many emerging markets.

However, global growth is forecast to gain momentum in 2019, and prospects for the GCC look similarly encouraging. The six-member economic bloc’s gross domestic product is expected to grow by 2.4 per cent this year and 3 per cent in 2019, the International Monetary Fund said in November.

The fund raised its previous forecasts announced in July on the back of higher oil prices and a slower pace of consolidation, as well as new revenue-raising measures including the GCC-wide VAT.

The UAE’s GDP is estimated to grow by 3.6 per cent in 2019 compared to 2.9 per cent this year, according to the IMF. Plans by the UAE government to allow foreign investors 100 per cent ownership in businesses and grant 10-year visas to some expatriates from next year could increase foreign direct investment and further drive economic growth.

“We expect the UAE economy to gradually pick up in 2019,” Parth Kikani, director of fixed income at Emirates NBD Asset Management, a part of the Emirates NBD, the largest lender in Dubai.

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“Efforts by the government to stimulate the economy, including [the new visa rules] and more relaxed onshore business ownership regulations in a number of sectors are expected to contribute to growth next year. We also expect Expo 2020 Dubai to be a catalyst for growth as corporate [sector] set up a presence in the Emirates," he said.

“In terms of earnings, we are going to see a focus on the banks as consolidation and higher US Fed rates drive improved profits.”

Egyptian lender EFG Hermes on Sunday forecast robust double-digit growth in corporate earnings for the Middle East and North Africa region in the fourth quarter of 2018, suggesting that an uptick in regional economic growth is starting to have a positive trickle-down impact on market performance.

Aggregate Mena earnings are set to grow 15.6 per cent in US dollar terms in the three months to the end of this year, with the strongest growth expected in Saudi Arabia (25.5 per cent year-on-year) and Kuwait (12.9 per cent). The UAE is expected to post aggregate growth of 5.6 per cent year-on-year, EFG Hermes said in a report released on Sunday.

A continued focus on innovation, digitalisation and emerging sectors such as fintech will continue to support the growing private sector and SME segment, noted Mr Kikani.

However, Mr Qaqish said he expects “weak sentiment” towards equity markets in 2019 due to the strong correlation between international markets, in particular the US and regional markets whose currencies are pegged to the US dollar.