Is the UAE stock market about to boom?

Year-high volumes and a further rally in share prices last week have left some observers wondering if the UAE stock market may be set for a boom in the near future.

The past two weeks have seen the volume of shares traded above $30 million, against the tradition of a Ramadan lull, while the Emnex index closed last week up 11 points at 2,159.98.

Underpinning this upturn are: better than expected oil revenues in 2003; better than expected financial results from the banks, which comprise half the value of the index; and a huge upturn in investment from the private and public sectors.

With a price-to-earnings ratio of 14.19 and dividend yield of 3.84%, the UAE bourse looks cheap. It will look even cheaper when companies present their bumper profits in early 2003, and the dividend is very attractive when compared to the 0.5% interest rates on deposit accounts.

So far this year the UAE stock market is up 16.5%, and is still far below levels reached in the 1998 crash. Now if the economy were still in trouble (1998 was the year of the $10 barrel of oil), there would be reason for stocks to stay at these levels.

In fact, the UAE is one of the fastest growing economies in the world right now, with GDP growth estimates ranging from four to eight per cent. The only cloud on the horizon is the prospect of a war in Iraq, with its inherent uncertainties, though few business people see more than a short term impact and that will probably be balanced by a spike in UAE oil revenues.

At some point, and when articles like this appear it is usually not far off, local investors will pile into stocks. It might take good financial results, or the resolution of the Iraqi situation, to bring them out, but they will come.