Abu Dhabi: Abu Dhabi’s main equity index jumped nearly two per cent on Thursday a day after shareholders voted to approve the merger between two of the emirate’s largest banks, National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB).

NBAD and FGB were the most actively traded stocks on Thursday, accounting for 37 per cent of the total market trade value. The merger between the two banks will create the Middle East and North Africa’s largest bank, with Dh655 billion in total assets.

Despite being heavily traded during the day, NBAD and FGB share prices ended the day only 0.16 and 0.35 per cent higher respectively. Given their weight on the index, though, the Abu Dhabi Securities Exchange (ADX) general index ended 1.88 per cent higher.

Dubai’s main index, the Dubai Financial Market (DFM) index, also jumped 1.8 per cent on Thursday as trade values rose to Dh1.47 billion as investors started rotating their portfolios to buy more blue chips.

“If you look for reasons why ADX and DFM are up nearly 1.9 per cent, it’s really about banks; Dubai Islamic Bank, Abu Dhabi Commercial Bank, FGB are all up. This, I think, is mostly to do with investors rotating out of the smaller cap stocks that don’t necessarily pay dividends into the bigger cap banking stocks and property stocks that all pay reasonable dividends when you come to the first quarter of 2017,” said Sanyalaksna Manibhandu, director of research at the National Bank of Abu Dhabi Securities.

Property stocks like Emaar and Deyaar were up 2.49 per cent and 4.1 per cent respectively, while Abu Dhabi blue chip Aldar Properties was the third most actively traded stocks on ADX and rose 1.5 per cent.

“The smaller cap stocks have been capturing investors for most of the fourth quarter of 2016, and a lot of the mid-cap stocks have gone up, so I think you will rotation into the bigger cap stocks,” Manibhandu said.

As for outlook, he said, “With crude going up for the first quarter in 2017, I think that we’re looking for positive momentum on ADX and DFM. The economic cycle is also calling for increasing interest rates, and higher rates are positive for banks.”

There is almost a 100 per cent consensus in markets that the US Federal Reserve will hike interest rates at its meeting next week, and with the UAE dirham being pegged to the US dollar, the hike will help UAE banks improve profitability in 2017.

Banking shares may also gain more momentum in 2017 if more mergers happen in the UAE, with many investors speculating that ADCB and UNB will be next to merge.

Of the 37 stocks traded on DFM, 23 went up, 10 went down, and four remained unchanged. Of the 35 stocks traded on ADX, 21 advanced, eight declined, and six remained flat.