UAE stocks have their best day ever!

What on earth was happening in the UAE bourse last Tuesday? This is supposed to be the middle of the summer when nothing happens in the Middle East.

Yet on Tuesday the UAE stock market had its best day ever, with shares worth a total of $18.5 million changing hands. OK, this is small change compared to London or New York, but this is a landmark for a tiny bourse like the UAE.

Most of the trading was in one share, Emaar Properties, and the word on the street was that a big announcement was due. In the event nothing was announced and the shares settled back the next day, although they still closed the week at a year-high of Dhs24.55.

But over the past fortnight the main Emnex Index has put on 90.35 points and finished last week at 2,550.84 points. Since the start of the year the index is up by 16.4%.

This is a very good performance but substantially behind the surge in stock prices seen in Saudi Arabia and Kuwait, the largest and second-largest Arab stock markets. So is the UAE bourse about to play catch-up?

It is not hard to make the bull argument. The Emnex trades on a price/earnings ratio of 15.69 and offers a yield of 3.36%.

If you believe that the UAE is set to be a high growth economy over the next five years - and just look at the investment in new oil and gas production in Abu Dhabi, and at Dubai's real estate and free zone projects - then this is very cheap.

In 1998 the UAE bourse commanded a price/earnings ration of almost double this amount. That, of course, is a bit of a problem. Many investors lost a lot of money then and are worried about doing so again.

However, as these worries ease a wall of money may hit the UAE stock market, and the start of that process may be dated back to last Tuesday.