UAE, Gulf stock markets are feeling that buzz again

As soon as this year began, the Gulf’s stock markets started riding a new momentum and collectively lifting the fortunes of listed companies. A year ago - and specifically after the outbreak of COVID-19 - these markets had been through sharp declines, especially after key sectors were brought to a standstill, and compounded by a lack of liquidity from the drop in oil prices.

The performance of listed companies were greatly affected, especially in banking sector and which is still suffering from the rise in bad/doubtful debt exposures. And now, given how markets are performing, the indications are that most of these negative factors are beginning to dim. With vaccination campaigns kicking off across the globe, it looks like economic activities are ready to get back to normal levels.

Speed up jabs

Things are expected to get even better as GCC countries wrap up their efforts to administer the vaccines to as many as is possible. They are now among the world’s top countries in per capita vaccinations, which is now at more than 20 per cent. This is constantly increasing, meaning that more than half of the population will get vaccinated in the second quarter of 2021.

The Gulf countries have announced their latest budgets, and which give ample evidence of greater support to various sectors as well as optimum levels of public spending, something that is vital in the current economic situation. Spending rates are expected to rise, something which will rub off positively on listed companies.

Oil prices too have risen and show enough signs of further improvements. In its latest report, OPEC indicated that demand will surge to 94 million barrels per day in the first quarter, which is close to pre-COVID-19 demand levels (at 100 million barrels per day). And if we look at the size of the output cuts announced by OPEC+ - at 7 million barrels per day - in addition to Saudi Arabia’s voluntary reduction (by one million barrels per day), supply shortages may occur, which could lead to further price gains.

Low enough

The steep decline in stock prices of many companies – particularly of banks - over the past year constitute an additional temptation for investors. At current prices, the returns for many listed companies exceed 4 per cent, which is much higher than prevailing interest rates of close to zero. It is also higher than yields on real estate in some Gulf cities.

This has fed the increase in trading volumes, both in terms of quantity and value compared to levels in January 2020. Such gains range between 5-20 per cent, and led by Dubai Financial Market. The index, incidentally, had the highest rate of decline in a year. Yet, the coming weeks could see some sharp fluctuations as companies announce their 2020 results, including many that show sharp declines, especially for banks.

This is due to doubtful debts and large provisions taken to compensate for them, which would lead to outsized fluctuations for these stocks. However, the general indicators appear to be positive for medium- and long-term investors, starting with the results from the first quarter of 2021.

This is why investors should not run after speculations to avoid losses and focus on companies known for financial stability and dividends. There are many such viable investments in the Gulf’s stock markets.

- Mohammed Al Asoomi is a specialist in energy and Gulf economic affairs