Dubai: GCC equity market investors have been urged to focus on companies with healthy cash flows, along with good balance sheets and that has the ability to maintain their dividend payout with a longer term focus, local fund managers said.
The Dubai Financial Market General Index, which shed more than 4 per cent so far in the year, witnessed stellar performance in 2013 and 2014, but analysts wonder if that can be repeated again.
“We are more constructive on the second half of 2016. We may see an uptrend in Brent prices, so the second half would look much better than the first half. Unless something dramatically changes in the external environment, we are unlikely to see the stellar performance of 2013 and 2014 getting repeated in 2016,” Sachin Mohindra, portfolio manager, at InvestAD told Gulf News.
So these investors would have to be very choosy in investing, and prefer companies with good cash cahsflow yields, which would mean good dividends, instead of earning an interest on the bank deposits.
“We think that for investors with a medium to long term perspective, this might be a good time for investors to slowly and selectively start digging their toes (accumulating shares) in the market,” Mohindra said, adding “We won’t recommend to be aggressive, but if investors focus on the right companies, they might be able to generate some decent returns in the long term.”
Investors should prefer companies that are focused on domestic markets, and not linked to international factors.
“They should focus on companies which are resilient to short term global trends, so invest in companies whose businesses models are primarily driven by domestic demand. In the UAE, Abu Dhabi-based banks are expected to maintain their dividends. Some of the consumer focused companies in Saudi also look interesting,” Mohindra said.
However, he reckons that most of the risks are known, but more weakness is expected if is a further deterioration of risk.
The major headwind are expected to come outside the region, so the China slowdown could be a headwind. On Wednesday, Europe announced that despite all measures taken, inflation is not yet picking up in Eurozone, so any deflation in Europe would also weigh on oil.
However, a rate hike by the US Federal Reserve later in the year or next year could prove to be a blessing for regional banks, according to Sanyalaksna Manibhandu, Manager of Research, National Bank of Abu Dhabi Securities.
“If we see a hike from the federal Reserve in 2016, this would mean good news for banks, where profits could recover due to wider net interest margins. We might see some stability and recovery in crude prices, and that could help GCC markets,” Manibhandu said.
Technical analyst still paint a bearish outlook for local stocks.
“DFM has strong resistance in 3,871 I think will not break it and will go down again to record new low below 3500 during current quarter,” Osama Al Ashri, member of British organisation, Society of Technical Analysts said. In stock specific ideas, ARTC will record new low during current quarter to be at support level of Dh1.37. “If Emaar breaches support level 6.07 I think will record new low to sup level 5.25 during current quarter,” Al Ashri said.
“ADX index has consolidated in this area and would be considered as medium risk but if the index breaches support level of 4,394 will face new low 4,279 during current quarter,” said Al Ashri.
Aldar will record new low may be during this month to a support level of 2.21. FGB awaiting new low to a vsupport level of 14.41 during this month. Saudi’s TASI awaiting new low to a support level of 6,755 at least during current quarter, Al Ashri added.
