Has the UAE stock market turned the corner?

In the past few weeks the UAE stock market seems to have at long last begun its recovery from the slump of 1998, and trading activity has picked up sharply.

'I believe that we have now turned the corner,' says Dubai Financial Market director general Essa Abdulfattah Kazim in an exclusive interview with AMEInfo. 'The interest rate reductions since the tragedy of September 11 have made people realise that bank deposits only pay 1-1.5% while companies listed on the DFM have yields of 4-6%. That is nearly twice as much.

'Also we are reaching the end of the financial year, and people who buy shares today will get the full year dividend payment. Secondly, investor information has improved and while not all companies provide quarterly statements, the situation is much better.

'Thirdly, there is a realisation that after September 11, Middle East assets abroad might be frozen due to an individual having the same name as a terrorist suspect, and there is a tendency to bring investments home, though I am not sure how significant this has been.'

But underpinning the bright future that Mr Kazim foresees for the UAE stock market is the simple fact that UAE companies have a good track record for profits and that this profit growth is likely to continue. Thus the UAE stock market does not carry the risk of profit annihilation that now hangs over some international markets.

Moreover, the DFM and ADSM companies trade on an undemanding price/earnings ratio of 7-8. In other words, they are cheap by global standards, as well as offering attractive dividends.

But at the moment you have to be a UAE national to buy shares in this market, aside from the special case of Emaar Properties where up to 20% of its shares can be held by foreigners. 'We will be encouraging other companies to make this move to encourage foreign investment in the market and create greater liquidity,' says Mr Kazim.

'There will also be a union with the Abu Dhabi Securities Market to create one UAE trading platform,' he adds, although the DFM boss will not be drawn to name an exact time frame for this desirable event. And plans are a foot to link up the DFM with other regional stock markets to encourage share trading.

'We are active in encouraging local companies to seek a listing on the DFM,' says Mr Kazim. 'It is a lengthy process but we have published a guide for any company interested in looking at an IPO. They should then come and talk to us'.

The DFM has also been actively creating a bond market, and its bond issue for Emirates Airline is one only a few notable events this year. But Mr Kazim says that with interest rates now bottoming out bonds may not be so attractive to investors in the future, or to companies that can now borrow from the banks at very attractive rates.

So far this year the key UAE stock market indices are up by 15-20% and the stage does seem set for a further recovery of the market thanks in part to the low interest rates of the dollar-linked dirham, the national currency. Indeed, it is somewhat ironic that the terrible events of September 11 have boosted the UAE stock market while plunging other nations into recession. But that is what has happened.

'I think we will see a big re-bound next year. This was our experience after the Gulf War in January 1991 when it was clear that the US had won. The Afghan War is also coming to a quick end and business will recover, and in the UAE we will benefit from the $10 billion that is going to be spent in Afghanistan'

It is hard not to be impressed by Mr Kazim's vision of 2002, and the logic underpinning his arguments. For investors and stock market observers it looks as though 2002 will be an interesting year to watch developments on the Dubai Financial Market and its fellow UAE bourse, the Abu Dhabi Securities Market.