Gulf stocks mark time, UAE has big upside

GCC stock markets drifted along last week with no great momentum up or down. But market analysts are becoming increasingly convinced that the UAE bourse now represents good value.

So far this year the UAE's Emnex index has gained 13% to 2,097.23 points. But the crucial price-to-earnings ratio for the index is only 14% against nearer 25% in 1998, and dividend yields are a comfortable 4% against an interest rate level of only half that amount.

Given that the UAE plans to double its oil output by 2010, and the investment program to that end will get underway next year, and the local bourse looks cheap. GDP growth on this scale is simply not being discounted by the market.

Financial stocks represent half the index, and will rise along with GDP. But surely the biggest gains over the next seven years will be in the real estate and telecoms sectors. Both are obvious big winners with GDP rising rapidly.

Skeptics might argue that the UAE will fail to reach its target and fall short. However, if there is one country in the world that can mobilize sufficient financial resources to finance its own expansion, it must be the UAE.

Any visitor to Dubai can not fail to notice the plethora of huge real estate projects, and Abu Dhabi will be very much the same in years to come, although much of its investment will be in oil and gas infrastructure which is not nearly so visible.

As usual in the Gulf, while countries such as Saudi Arabia and Kuwait are discussing investment projects, the UAE already has them in hand, committed and in many cases under construction.

Thus investors who take advantage of the UAE bourses current state of war-fear paralysis will doubtless reap the rewards sown now in future years. It is just a shame that most shares are still only available to UAE nationals as that limits market liquidity and is another reason for lower than necessary valuations.