Market analysis: Equities are set to keep their upward momentum

Over the past month, positive momentum in global equity markets continued, with the S&P 500 Index touching a record high.

US market performance has been primarily driven by expectations of pro-growth policy measures to be introduced by US president Donald Trump’s administration, but corporate profitability of US companies has also been supportive of 2016 numbers, showing a 1 per cent positive earnings surprise.

For regional markets, dividend season remains in focus with Saudi, Egypt and Morocco performing poorly during February.

In the first two months of the year the Dubai index is up by 5 per cent and Mena markets by 1 per cent, although both underperformed the wider emerging markets index, which is up by 9 per cent.

Oil prices remained flat during the past month, hovering around US$55 per barrel for Brent crude. The US rig count continues to increase and stands at 602 compared to 566 at the end of January. US oil inventory levels touched a 52-week high of 520 million barrels with a 25 million barrels increase reported last month.

Implementation of Opec production cuts remains on target, however, oil production in the US is inching higher driven by stable oil prices. US oil production rose to 9.03 million barrels per day (bpd), an increase of 260,000 bpd this year. It is expected that US oil production could increase by 500,000 to 1 million bpd in 2017.

In the UAE, fourth-quarter earnings releases have now been completed. Emaar Properties reported better than expected Q4 2016 revenues (16 per cent rise year-on-year) and net profit (56 per cent up year-on-year) supported by solid revenues from property sales and the reversal of a Dh300 million insurance claim.

Arabtec and Drake & Scull International posted losses, which adversely impacted market sentiment.

Arabtec reported a 2016 net loss of Dh3.5billion, mainly due to impairment charges against certain projects. Arabtec announced its plan to raise equity through a Dh1.5bn rights issue along with a capital reduction plan, which will help the company to offset accumulated losses on the balance sheet and facilitate raising new capital.

Proceeds from the rights issue will be used to fund completion of ongoing projects and also to pursue growth opportunities going forward.

Aldar Properties reported better than expected quarterly profit, while Etisalat announced a 19.5 per cent year-on-year increase in net profit supported by solid operations in the domestic market and by its subsidiary ­Maroc Telecom.

The Federal Government approved a new visa system to attract talent to the UAE in the field of sciences and medicines.

Under the new scheme, the government will offer permanent residency for foreign workers, the new visa system could also be supportive for the real estate market in the country in the long term. Meanwhile, tourism numbers in Dubai increased by 5 per cent year-on-year to 14.9 million in 2016 with an impressive five-year compounded annual growth rate of 8 per cent from 2012 to 2016, mainly led by a surge in tourist arrivals from China, Russia and India.

Overall, UAE markets have performed better than regional markets on a year-to-date basis and we remain positive on the medium-term outlook. As the dividend season comes to an end, market focus will move towards first-quarter earnings, stock-specific catalysts and economic reform announcements.

Saleem Khokhar is the head of fund management at National Bank of Abu Dhabi

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