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While China put all efforts to secure a soft landing of its economy, chances for partial bailout of indebted Spain rose, and in the US, the labour market showed a boost in the influential non-farm payroll employment in July, raising Barack Obama's chances for being re-elected in November.
Elsewhere in the GCC, markets in Doha and Riyadh also posted significant advances, while Kuwait and Bahrain fell back. With a year-to-date gain of 15% (as of August 8), Dubai's DFMGI is the best performing equity index in the Gulf region. In the same period, the ADXGI in Abu Dhabi gained five percent. Trading volumes rose moderately at both markets.
Strong quarterly earnings lift indexes
Besides geopolitical tailwinds, encouraging quarterly earnings reports lifted both gauges. DFM bellwether Emaar Properties recorded a 146% increase in net profit in the second quarter, and in the last four weeks its share price rose over 10%. On August 1, Emaar shares were trading close to a one-year high. The old rule from the heydays that "When Emaar goes well, Dubai goes well", still applies.
In Abu Dhabi, Aldar Properties and Sorouh Real Estate, who are on the way to seal a merger, also reported str0ng Q2 results. Aldar saw a 146% rise in net profits from April to June, while Sorouh said it earned 34% more in the last quarter. The stocks of both developers hit multi-month highs at the start of August.
Meanwhile, EFG Hermes has raised the target level for the DFMGI from 1,660 to 1,680, in case the gauge breaks out from its current channel from 1,480 to 1,560. Domestic data fuel the new risk appetite. Earlier in the July, the Dubai Land Department announced the highest number of unit sales and unit value recorded during any July on record, reaching more than Dhs2bn ($545m).
The UAE as politically stable and Gulf state with an open economy partially benefits from the ongoing turmoil in some Arab countries. In addition, the Emirate of Dubai's bid to host World Expo 2020 generated a new "feel-good factor" in the UAE.
Nevertheless, the apparent midsummer night's dream deserves closer inspection. Stocks' performances reveal blatant differences. While logistics provider Aramex, listed on the DFM, added only half a percentage point in the last six months, shooting-star Emaar added in the same period almost 20%, while Dubai Islamic Bank shed 10%, although DIB reported a 27% jumps in Q2 net profit, beating expectations.
In addition, the quarterly loss of Dhs11.2m which Arabtec Construction announced on August 8 reminded the financial community that despite the green shoots seen in the real estate sector not all market participants are out of the woods yet. Though Arabtec shares have doubled in value since January 1, the stock has been fluctuating around Dhs3 since May and could benefit from the summer rally as did Emaar or DFM (the only Arab bourse which is traded publicly).
And at the NASDAQ Dubai, shares of Dubai Ports (DP) World have been trading in a range between $10 to $11 since May, although the world's third largest maritime port operator reported on August 1 a 7.5% increase in container volumes in H1 2012. The ADX offers a similar picture. While Aldar hit a four-month high and RAK Properties gained 17.25% year-to-date, shares of telecom giant Etisalat added 5.9% "only".
Two conclusions can be drawn of the actions at UAE markets. Firstly, stocks do not rise in value because the underlying entity is generating profits but because there is demand for the shares. Secondly, despite all apparent signs that the UAE is on a recovery path (the HSBC UAE Purchasing Managers' Index hit 53.4 points in July, signaling the thirty-fifth successive month-on- month improvement), investors will continue to meticulously select shares.
Gérard Al-Fil, Financial Journalist
