Dubai: Long-term investors should get into selective stocks for dividend play, but avoid volatility in the market by phasing out investments over many months, fund managers said.
The Dubai Financial Market General Index has been witnessing high volatility along with crude oil. The DFM General Index extended gains to end the week by rising as much as 4 per cent, snapping a three day losing streak till Tuesday.
The Dubai index was the best performing market until early December, but gave away almost all gains at one point, only to end the year 12.69 per cent higher.
This means any investor who invested Dh100,000 at the start of the year got back only Dh126,900 till December 31 after riding through the volatility.
To avoid such a situation, fund managers are advising to invest in bits and pieces over a few months with focus on dividend play.
“They shouldn’t try to play and trade volatility and face losses. Phase in their investments over a period of time,” Saleem Khokhar, head of equities at National Bank of Abu Dhabi’s asset management group, told Gulf News.
“Those looking for income generation, it is an opportunity for getting very attractive dividend yields, however given the volatility it would be sensible to phase in investments over a few months,” said Khokhar.
Most of the companies would start announcing dividends by early February and March and make payments by May. Banking and financial services sector has been on the forefront in terms of dividend payouts other than Emaar Properties. Banks are known to have paid dividends up to 15-35 per cent.
However, analysts expects that volatility in crude oil and equity markets to continue. “Volatility will persist until we see stability in oil prices. Once oil prices stabilises fundamentals would take the front seat once again, and will start dictating the market performance. We have definitely overshot on the way down with a negative sentiment triggered by oil prices weighing on the markets,” said Rami Sidani, head of investments in the Middle East, Schroders.
“As we see more stabilisation in energy markets we believe markets will rebound at more acceptable levels.”
Brent crude hovered near the keenly-watched $50 per barrel mark weighed by expectations of a global suply glut amid sagging demand. Brent lost half of its value last year after Opec decided to keep output steady.
Cautious
“Investors need to be cautious on petrochemical sector, banking real estate and telecom should fairly give good returns with good dividend yield, which gives measure of protection in volatile times,” said Khokhar.
Generally, the outlook for the Gulf Cooperation Council (GCC) banks look stable in the year ahead due to strong operating environment, according to global credit rating agency Moody’s.
However, current volatility has offered good entry points for certain select stocks.
“Opportunities are coming up and investors should take advantage of high volatility as we expect this volatility to provide good entry points to fundamentally solid stocks. Investors should have longer term horizon and do not be impacted by short-term volatility,” said Sidani.
Sidelines
“A lot of investors are on the sidelines. They will come in gradually. The High Networth Individuals would like to see a more stable market before they come in. We have local funds who are providing the shy leadership in the market.”
The volumes have been on the lower side off late. Last week, DFM recorded volume of more than Dh500 million compared to the daily average of more than Dh1 billion.
Industry participants said that more liquidity would hit the market once fund managers start rebalancing their portfolio and allocate fresh funds to UAE and Qatar after the MSCI and S&P Dow Jones upgrade.
