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Earnings and valuations point to Gulf stock rally
Strong earnings growth in the first two quarters of this year combined with relatively low valuations of Gulf stocks make them strong candidates for a second-half rally, according to analysts.
- By Babu Das Augustine, Banking Editor
- Published: 23:35 June 1, 2008
Dubai: Strong earnings growth in the first two quarters of this year combined with relatively low valuations of Gulf stocks make them strong candidates for a second-half rally, according to analysts.
Although historically sluggish during the summer months, the strong presence of foreign investors is likely to keep a few regional markets such as Dubai and Abu Dhabi busy.
"In the UAE valuation remains appealing and Western institutions have broadly begun re-entering the market, a trend we expect to continue. We see potential for Dubai to outperform against Abu Dhabi in second half of 2008," said EFG Hermes, a regional investment bank in their outlook for the second half.
Stock market performance has varied widely across the Gulf Cooperation Council (GCC) year-to-date. Oman has returned the best performance at 27 per cent, closely followed by Qatar at 25 per cent, Kuwait 19 per cent, and Abu Dhabi 9 per cent.
The remaining regional markets have seen less impressive performance with Saudi Arabia by far the weakest at -15per cent, followed by Dubai at -10 per cent, and Bahrain at 4 per cent. The combined performance of the UAE indices has been flat year-to-date. This has left the GCC trading at a median P/E of 16.1 in 2007.
"The Gulf stock valuation look very attractive in the context of strong corporate earnings in the past several quarters. We expect strong performance from these markets in the months ahead," said Tariq Qaqish, Fund Manager with Al Mal Capital. Al Mal launched an open ended fund focused on Middle East and North Africa equities last week.
Analysts expect differentiated returns for each of the GCC markets in the second half of this year, with a relatively greater emphasis on stock selection compared to 2007. Regulatory and/or government actions play a more important role this year and could be a source of substantial additional upside.
"We are overall positive on the prospects for the GCC markets in the second half and we see the highest fundamental upside for Saudi Arabia, followed by the UAE and Qatar. While we do see upside in Kuwait, Oman and, to a lesser degree, Bahrain, we would advise a strongly stock selective approach," EFG Hermes said in a strategy note.
Do you think the UAE stocks will perform better in the second half? What do you think was the reason for the stocks performance in the first half of the year? Tell us at letter2editor@gulfnews.com or fill in the form below to send your comments.
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