Men and women work in the main hall of the Dubai Financial Market (DFM) in Dubai, United Arab Emirates. — Bloomberg News
Dubai stocks entered a bull market as the lowest valuations in four years lured investors following a selloff across the Gulf region.
The DFM General Index rose 2.5 per cent to 3,170.27 on Monday, bringing its gain since a January 21 low above the 20 percent threshold for a bull market. Companies on the gauge traded at an average of 8.7 times their estimated earnings over the next 12 months, compared with 10.9 for the MSCI Emerging Markets Index, according to data compiled by Bloomberg. They traded at 7.2 times expected earnings on January 21, the lowest in four years.
The price-to-earnings multiples are depressed, the dividend yields are high compared to regional and international markets and the currency is pegged too, so it offers investors protection,” said Nabil Farhat, an Abu Dhabi-based partner at Al Fajr Securities. “If oil prices stay at higher levels, then it will last.”
Stocks are recovering from the worst start to a year since 2011 as oil, the biggest source of government income in the six- nation Gulf Cooperation Council, climbs from the lowest level in more than 12 years. While Dubai’s economy doesn’t depend on crude revenue to fund expenditure, it relies on its oil- producing neighbors to spend on tourism, trade and commerce. The GCC, which includes Saudi Arabia, is home to about 30 per cent of the world’s proven crude reserves.
Brent crude, a benchmark grade for half the world’s oil, rose 3.6 per cent to $34.19 per barrel at 3:55pm in Dubai.
Speculative stocks
About 629 million shares changed hands on the main index, more than double the six-month average, according to data compiled by Bloomberg. The gauge closed at its highest level since December 6. Dubai Islamic Bank, the largest Sharia-compliant lender in the United Arab Emirates, led the advance with a 3.7 per cent increase.
The gauge’s 14-day relative strength index, which dropped as low as 19.1 in January, rose to 65 on Monday, the highest since April. A level about 70 indicates to some investors a security may be overbought.
For the rally to continue, “we will need to see high conviction blue chip stocks move in alignment with speculative stocks,” said Tariq Qaqish, the head of asset management at Dubai-based Al Mal Capital. he said.
The most-traded shares in the emirate included Drake & Scull International, Arabtec Holding and Amlak Finance, which together have a weighting of less than five per cent of the index. The volume of trading in shares of Emaar Properties, the developer of the world’s tallest tower which accounts for a fifth of the gauge, was 36 per cent below the 30-day average.
Traded value
Still, the rebound has been supported by a three-month up- trend in the value of shares changing hands. The 20-day moving average for daily turnover has almost doubled since hitting a 31-month low in November to Dh507 million ($138 million).
“Investors are more optimistic because of a recent rally in oil prices, they believe most of the bad news is already priced in,” Qaqish said.
Source: TimesOfOman