There appears to be a glimmer of light at the end of the tunnel for UAE markets.
It’s too early to say the bear market ushered in by the fall in oil prices last autumn is at an end. But it is, perhaps, the end of the beginning of a revaluation of equities in the emirates.
There are signs that financial professionals are coming to terms with the “new normal” in capital markets, as they are in oil markets, and starting to get on with life again.
In the past month there has been a revival of oil price shares, and a corresponding improvement in share prices across the markets. Although in theory there is no reason for oil prices to determine what happens to share prices, in practice, and as we have seen over the past few months, the oil price decides the basic economic health of the region. Everything else – including property prices and share values – follows.
So since the middle of December, when the Dubai Financial Market General Index hit a low of just over 3,000 points, there has been a significant recovery. It now stands about 26 per cent better off.
The Abu Dhabi Securities Market General Index is about 18 per cent ahead at about the 4,600 points level, having dipped below 3,900 in December when oil was falling fast.
In both markets, a level seems to have been found over the past month. It is about 15 per cent lower than the highs of last summer, boosted by talk of IPOs, but it’s respectable enough in the circumstances.
The best equity performer in the region over the past month has been the Saudi Tadawul, 10 per cent ahead. As the largest oil producer, biggest economy and highest valued market, that speaks volumes about the recovery of GCC markets. The smoothness of the royal succession in the kingdom appears to have reassured investors and oil traders.
Just as important in the overall recovery is the fact that few regional governments embarked on a knee-jerk spasm of public sector cuts, which could have seriously affected economic growth. Wiser counsels prevailed to the effect that the savage oil price falls of mid-December would prove only temporary.
It looks as though the Cassandras who predicted months, or even years, in the doldrums for UAE equities have been proved wrong. Two consecutive quarters of slower economic growth are looking like a real possibility for the country, but most investors will see that for what it is: a consequence of the global decline in energy prices, rather than an innate deterioration in the economics of the Emirates.
Indeed, there are even signs that market activity may be about to take another big leap forward. The listing of Orascom Construction on the Nasdaq Dubai market as well as its native Cairo exchange was a sign that the listing market has not dried up altogether.
Financial advisers report that there is still a stream of companies considering IPOs in Dubai and Abu Dhabi, with at least two marked for listing in the first half of the year. Added to the big ones that we know are being considered – Al Habtoor in Dubai and Gulf Capital in Abu Dhabi, as well as various Emaar entities – and that means that 2015 might not be the barren year for market debuts some pessimists had suggested.
With the authorities seeming to rule out “greenfield” listings for the time being, and with the new (lower) valuations prevailing in the markets, vendors and their advisers might just be inclined to launch some offerings at reasonable prices again, a good thing after some of the overpriced flops of last year.
The markets are not entirely out of the woods. Energy experts are still divided as to whether the recovery in oil will be permanent and resilient. And geopolitical factors – in Ukraine, in the euro zone, and in the Middle East – have the eternal capacity to throw economic projections off course.
But UAE and regional markets have so far adapted to the new economic climate of lower energy prices comparatively well. Prospects are much better than they were even just a month ago.
fkane@thenational.ae
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