DFM
Banking stocks lit up the charts at Dubai Financial Market all through the year. Image Credit: Gulf News Archives

Dubai: Stocks of UAE banks came out on top in 2019, weathering the downturn in the local property market and US-China trade tensions that dented growth worldwide.

Emirates NBD outperformed and brought the most gains on Dubai Financial Market after rising about 50 per cent, while Abu Dhabi Islamic Bank outpaced ADX (Abu Dhabi Securities Exchange) by gaining nearly 40 per cent. These helped the main index on the Dubai bourse rise over 9 per cent in the year to date, while ADX gained more than 3 per cent.

First Abu Dhabi Bank (FAB) outperformed the top index by rising 7 per cent, alongside Rakbank, which rose 12 per cent.

Reasons for superiority

The UAE government announced in July that the seven emirates can set foreign ownership limits (FOLs) at 100 per cent across different sectors. Banks soon after revealed plans to increase their FOLs, which analysts said attracted higher portfolio investments into the UAE and boosted the stock market.

“FOLs was the main part of the story for UAE banks, and this will remain part of the story in 2020 because we still have some of the banks who actually got approvals to increase but still did not implement it,” said Marie Salem, Head of Institutions at Daman Securities.

While Emirates NBD announced its intention to increase foreign ownership limit to 40 per cent, UAE’s biggest bank by assets FAB proposed to scrap its FOL cap altogether.

Consolidation gains

“I do think that mergers and acquisitions among banks did help this year and there may be more consolidation,” said Salem. “But we are probably not going to see it in the same number as we did in 2019.” She remains “extremely bullish” on the banking sector.

In the last year, banks navigated through a downturn in the country’s property market and weak performances put in by the non-oil private sector. Property accounts for around one-fifth of UAE banks’ gross loans, though the true exposure is higher when retail mortgages and lending to companies that finance development are taken into account, according to analysts at Fitch Ratings.

However, analysts say things are looking up. “Interest rates are trending lower – negative for spreads, but positive for credit quality and growth – and Expo 2020 Dubai should lift non-oil growth,” Mohamad Al Hajj, an equities strategist at EFG-Hermes, said in a note.

Air Arabia flies in

Among top percentage gainers on the DFM, coming in a close second was Air Arabia, rising 40 per cent. Airlines in the UAE had a strong 2019 on improved passenger traffic, a pick-up in yields after being pressured for almost three years, while also benefitting from limited cost pressures from muted oil prices.

“Air Arabia offers good value, with a high chance of dividend resumption in early 2020,” Al Hajj said. The company recently announced a joint venture with Abu Dhabi’s Etihad, which is expected to start operations in 2020, and a 120-plane order book from Airbus with the first delivery in 2024.

An underperformer

Real estate underperformed the respective indices in the UAE, with Abu Dhabi’s Aldar Properties being the only exception, after rising about 35 per cent, Dubai-listed Emaar Malls rose 6 per cent.

“[Property] market conditions have been challenging in the country, with companies facing difficulties to increase their contracted sales,” said Al Hajj. “Selling prices are, at best, stagnant, and developers are offering extended payment terms to encourage sales.

“A number of macro initiatives failed to reflect positively on the sector’s activity and, in turn, respective stock prices.”

The UAE government announced earlier this year the launch of a permanent residency scheme to boost foreign investments, while Dubai formed a committee to regulate new project launches and boost long-term sector outlook.

“We expect real estate stocks, in general, to underperform the general market index in 2020, with a few exceptions that we think will relatively outperform their peers,” Al Hajj said.