Sound fundamentals 'justify stock index surge'

Dubai's share market index, which gained 45 per cent in April, is being driven by robust first quarter company results, rising income from record oil prices and relatively low interest rates, according to the head of the exchange.

Helped by a strong economy, the Dubai Financial Market (DFM) index has risen 95 per cent since the beginning of 2005. The DFM has 20 listed companies and is serviced by 16 brokerage houses.

Trading value on the DFM was a record Dh3.06 billion on Monday, higher than the average daily turnover on the the Bombay Stock Exchange in March of Dh2.29 billion (Rs27.05 billion). The Mumbai bourse lists more than 6,000 companies.

DFM director-general Essa Abdulfattah Kazim told Gulf News that the exchange expects to upgrade its electronic trading system in May to improve efficiency, and would approve 12 pending applications by new broking companies over the next few months.

Kazim said the upgrading of DFM's trading platform would enable more and quicker transactions, while the increase in the number of brokerages will help cope with growing investor interest. "Broking is a good business and companies are now being flooded with calls from investors".

He said corporate results for the January-March quarter beat expectations, and the rise of the index in April was justified by these fundamentals. "You look at Emaar. They made [a profit of] about Dh1.3 billion in the first quarter, while they had done something like Dh1.7 billion in all of 2004. So this [rise in the index] is mainly [due to] the results and I think the market will continue to do well as long as the fundamentals justify it."

Most listed companies in Dubai have reported sharp rises in first quarter profits, spurred by rising investment in a buoyant economy and a surge in consumer spending.

On Saturday, district-cooling company Tabreed reported a 193 per cent surge in profit for the January-March quarter to Dh17.13 million, benefiting from strong construction activity in the industry.

Kazim said GCC markets had risen over 50 per cent in 2003 and 2004, and this was matched by growth in corporate profits and helped by a rise in oil incomes.

Crude prices, which have hovered around $55 a barrel this year, had doubled in two years, generating large investible surplus in the GCC countries, he said.

"For various political reasons people now believe that it is better to invest within the region and the stock market offers them an opportunity to make money since interest rates are low."