Stock markets prepare for post-Ramadan rally

Dubai: Activity on UAE's bourses is expected to remain moderate in the last week of Ramadan despite the Abu Dhabi and Dubai markets having shown more confidence in the wake of improving sentiment among global investors. Dubai's DFM was among the highest performing markets in the region last Thursday, with Aramex underpinning the rise of the index.

Shares of the logistics provider rose around three per cent as a result of investors' shift to defensive stocks. Also, banks and developers' stocks recorded higher buying interest than usual in the last week.

"Defensive names are good in a volatile market," says Marwan Shurrab, vice-president and chief trader at Gulfmena Alternative Investments.

Rating hikes by Goldman Sachs on some UAE banks and an optimistic outlook report from Standard and Poor's last week are both seen as good drivers for the after-Ramadan trading season. Goldman Sachs raised its ratings on Abu Dhabi Commercial Bank and Dubai Islamic Bank, saying UAE banks are adequately capitalised to generate sufficient operating income to absorb elevated loan losses.

Mousa Haddad, head of the Mena equity desk at National Bank of Abu Dhabi, is taking a bullish position. After weeks of low volume and high volatility, he expects that markets will be more active towards the end of Ramadan, as speculative investors are building up positions in expectation of a stock market rally after the holy month, which was not uncommon in the last years.

Flow of funds

Haddad is also anticipating a revival of interest of foreign investors in the regional stock markets. "We could soon see a flow of funds from international investors coming into the Mena markets, so now is a good time to start building positions," Haddad said.

However, there is much to catch up for both the DFM and the ADX. The year-to-date performance of Dubai's index was minus 16.96 per cent as of last Thursday, and Abu Dhabi's ADX lost 9.08 per cent in the period. Especially in Dubai, the resistance of the index at 1,500 points proves to be a strong hurdle.

The coming trading week will also be interrupted by the Labour Day holiday in the US on September 6, when Wall Street is closing. But the agenda will include the international trade deficit data, which investors will scrutinise for clues on spending, as well as the latest weekly jobless claims numbers.

Eid holidays in the UAE will lead to a shorter trading week thereafter.