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Both, said Mac Capital, are 'positive signs for local bourses' and it believes that the ADX and DFM markets will see an upswing in trade during the second quarter.
The company has looked at the market and given its assessment of positive and negative drivers.
Positive Drivers
Corporate results: Results reported by UAE companies to date have been generally better than expected. Property company's Arabtec and RAK Property have both reported positive earnings growth, with an absence of write-downs on investments and property values.
Similarly, banking results have been positive with high single digit income gains reported by a number of Saudi & Qatar based banks. Positive Q109 earnings guidance from Dubai-based Emirates NBD, which had previously been flagged as one of the higher risk exposures, provides a bell weather that banking results across the UAE are likely to be solid in the first quarter.
Oil Prices: Oil prices have remains strong around the $50/barrel range during the past two weeks. OPEC production cuts continue to constrain supply, however the next catalyst to push the oil price to $60-$70/barrel is likely to be evidence that US Oil Inventories begin to decline.
This prospect is only likely to arise from a pick-up in domestic demand, which is likely from Q409 onwards, as the global recession nears mid-cycle.
In either case, oil prices in the $50 range play an important role in regional sentiment and maintaining fiscal balances.
Re-finance risks alleviated: Recent successful re-financings of large debt parcels by Bourse Dubai, DEWA and the Civil Aviation Department have demonstrated that weakness in the UAE credit markets had overshot.
CDS rates have now subsided to circa 5.65% in Dubai, with the three-month EIBOR rate also reducing to 2.6% from highs of 4.3% during December 2008. Dubai's $20bn bond issue, with the first tranche of $10bn underwritten by the UAE central bank, has given confidence that outstanding loans and payables to contractors and suppliers to Dubai Inc companies will be settled over the coming 12 months.
This gives confidence in the ability of local SME's and large corporate players to trade out of the current economic difficulties and as a result, credit markets are likely to continue to thaw out during Q209.
Neutral
Foreign Investors: Foreign investors hold the key to UAE markets regaining ground to early-mid 2008 levels. From being net sellers during FY2008, foreign institutions have now taken a more neutral trading stance on UAE markets, most likely as they have already exited from unfavourable positions.
Mac Capital believes that a combination of rebounding developed markets and greater confidence in the UAE markets is required before foreign investors become strong net buyers on local bourses.
Staff
