Despite a stormy start to the week, the DFM index gained further on Thursday, with the benchmark up by 0.64 per cent. The transportation and real estate sub-sector led overall gains, while consumer staples continued to suffer due to ongoing decline in DXB Eentertainment's price.
The UAE economy's double-whammy of COVID-19 led stifling of growth and the oil price shock increased stock volatility through this year. This has affected the overall growth and investment cycle for a majority of the listed firms. Perhaps the best way to understand this is by looking at their capex (capital expenditure) cycle.
In Dubai, last year's aggregate capex spending by listed firms was Dh7.69 billion, whereas this year it has dropped by 15 per cent to Dh6.56 billion. The biggest dip has happened on DFM materials and DFM consumer discretionary sub-sectors followed by DFM consumer staples.
Among individual names, DXBE, Union Properties and Emirates NBD have had highest capex cuts. The telco du recorded the highest growth, at 45 per cent. One probable reason could be the increased demand for telecom services as more residents adopted a work-from-home model.
Another sector with higher capex is insurance, with Arabian Scandinavian Insurance, National General Insurance and Dubai National Insurance leading the way. It could be the expectations for more provisions on account of claims in lieu of COVID-19 related effects.
More range bound
DFM financial sub-sector saw modest capex declines, at 11 per cent, while in industrials, Dubai Investments with its 37 per cent growth was counter balanced by declines at Air Arabia (down 49 per cent) and Aramex (7 per cent). Looking at return on capital invested (ROCI), DFM financials and DFM real estate have seen average growth rates of 3.9 per cent and 8 per cent, respectively, this year.
Consumer staples had the biggest dip in ROCI, at 23.55 per cent.
For companies in Abu Dhabi, last year's aggregate spending was Dh13.73 billion, whereas for this year it dropped by 2 per cent to Dh13.491 billion. National Marine Dredging Company, Dana Gas and Emirates Driving had the highest increases.
On a sector basis, materials (52 per cent) and real estate (73 per cent) led the declines. Energy sector was supported by Dana Gas (up 176 per cent) and Etisalat, by a more prosaic 7 per cent. On a return on capital invested basis, Abu Dhabi companies fare much better.
Only materials and healthcare had negative ROCI this year.
- Vijay Valecha is Chief Investment Officer at Century Financial.