Amid the tumultuous seas of emerging market volatility, as investors shift towards safer havens in fear of Fed tapering, the UAE has remained a surprisingly stable beacon. UAE equities reached record levels over the last year and sound economic fundamentals make the market a strong contender for safe haven status, as it surges past the main contenders to outperform global markets.
The UAE has seen sustained growth this year in stark comparison to global volatility. In January Dubai was up 11.9% for the year while Abu Dhabi rose 8.9%. This is partly because the key emerging market concerns of weakening foreign direct investment flows and depreciating currencies have had less of an impact in the GCC due to its position as a net creditor and the pegging of its currencies to the US dollar, which gives it some immunity from Fed tapering.
Ghadir Abu Leil-Cooper, a MENA fund manager at Baring Asset Management, explained to the Wall Street Journal last week that: “Essentially the GCC have current account surpluses which makes them immune to US taper somewhat; and they are less cyclical because oil is holding up and the domestic consumer is doing well.”
In December 2013 Dubai’s benchmark Dubai Financial Market (DFM) saw stocks reach a five-year high, boosted by the UAE’s upgrade to emerging market status along with attractive valuations and strong foreign liquidity. As of January this year the DFM had climbed a further 2.8% with an average daily traded value of US$496 million; a gain of over 75% on December and quadruple the average value recorded in January 2013.
“From an investment perspective, the upgrade will lead to an increasing number of global emerging markets investors focusing on Qatar, the UAE and the rest of the Middle East and North Africa. In our view, this region offers unique investment potential due to its vast natural resources, favorable demographic profile and growing domestic demand,” said Ghadir.
Fourth quarter earnings for Emirati banks largely met expectations and have grown further this year on the back of a strong real estate market and sound economic fundamentals: with share prices increasing and lending seeing steady growth. Islamic banks, especially the smaller players, put in a strong performance: with Sharjah Islamic Bank the top-performer with a 38% gain. Corporates are also benefiting from the boom: with property and construction growth driving equity gains for leading firms including Emaar, Arabtec and Aldar (which is up 16% already this year).
“The UAE markets have risen sharply but justifiably,” according to Khaleem Khokhar, the head of equities at National Bank of Abu Dhabi. “We can expect volatility and a pendulum effect will likely come into play, but it is important to note that the center point for fair valuation of the pendulum is shifting as underlying fundamentals are undoubtedly getting stronger.” — LM