Investors in the Arab exchanges can still find value despite 2011 falls

The Arab Spring has left its traces at Mena capital markets. With a tiny annual plus of over one per cent, the Qatar Exchange index is the only Arab gauge which advanced over the year. Although the UAE - like Qatar - has not seen any uprising or protests whatsoever, stock indexes in Dubai and Abu Dhabi dived 17% and 13%, respectively, mostly due to ongoing challenges in the real estate sector.

The systematic or market risk was high in 2011, as uncertainty prevailed, not only because of the regional turmoil but also due to negative spillover effects from the US and Eurozone debt crisis. A closer look at the performance of individual stocks during the second half of 2011, however, shows that risk-takers were rewarded in several cases across the GCC. Readers should, however, note that the following stock discussions are not buying recommendations and that past performances of particular shares do not guarantee any future returns!

While for the Dubai Financial Market General Index (DFMGI) it was all the way down from July to December, Arabtec Construction, one of the most liquid shares in the UAE, advanced 26% during the same period amid high but volatile trading volumes. Dubai-based Arabtec has internationalized and diversified its client portfolio. Both its price/earnings ratio of 7.69 (according to data compiled by the DFM) and its price/book value of 0.88 are comparatively low and attracted bargain hunters.

At the Nasdaq Dubai, jewellery trader Damas was a top performer. Its shares almost doubled in value during the second half of the year from $0.10 to $0.19, albeit amid low trading volumes. Damas has benefitted from high gold prices and lured consumers with a pro-active marketing strategy during the month of Ramadan in August and at the end of the year.

At the Tadawul bourse in Riyadh, insurers were among the top performers. In the wake of the financial crisis, institutions and individuals likewise became more aware of the risks they bear if they leave their property, health or luxury goods uninsured. At the same, the Saudi Arabian Monetary Agency (Sama) has taken steps to upgrade the legal framework for insurance companies. This triggered a growing appetite for listed conventional and Islamic insurance firms. Takaful operator Al-Rajhi Company for Cooperative Insurance for example rose from around SR35 at the start of 2011 to over SR52.75 (as of the close of trading of December 28th).

Oil prices (US crude) soared 10.5% in 2011 but the oil price-sensitive Kuwait Stock Exchange Market Index fell over 16%, mainly as a result of a crisis in the Kuwaiti parliament. Nevertheless, Kuwait's budget carrier Jazeera Airways rose more than three-fold over the last twelve months. Jazeera Airways CEO Stefan Pichler told AMEinfo.com that "we will do nothing what is against creating shareholder value." Pichler, a veteran in the aviation and tourism industry and a former CEO of Thomas Cook, upgraded Jazeera's operations and delivered a high on-time performance of over 95%.

The above examples demonstrate which features investors should examine when investing in shares: individual company strategy and execution; low share price valuation; supportive sector trends and the quality of management.