Arabtec leads UAE rebound; Qatar also rises
Dubai, June 12, 2014
Dubai builder Arabtec, whose sharp decline had dragged down the emirate's bourse this week, spearheaded a rebound on Thursday after denying rumours it could delist, although concerns linger about the plans of a major shareholder.
Shares in Arabtec surged 11.1 percent on strong volume while Dubai's general index rose 3.7 percent, its biggest daily jump this month, as both ended four-day losing streaks.
Arabtec tumbled 30 percent earlier this week as a major shareholder, Abu Dhabi state fund Aabar Investments, cut its stake to 18.85 percent from 21.57 percent. The frenzied selling was accompanied by rumours that Arabtec might delist, which the company denied on Thursday.
Aabar declined to comment on the matter, leaving investors guessing whether it will hold on to its remaining stake and whether it will continue supporting Arabtec in the long term by steering contracts its way.
Some traders said Aabar's selling seemed to cease on Thursday, but the market does not know whether it might resume sometime in coming months.
"What's most important is that either Aabar or Arabtec needs to make it clear what Aabar's strategy is with regards to Arabtec going forward," says Allen Sandeep, director of research at Naeem Holding.
"The answer to this is very important because Arabtec has some very large MoUs (memorandums of understanding) signed and it raises questions of whether Arabtec can execute them without Aabar's support. That's why the market is still a bit uncertain."
This year, Arabtec signed its largest deal ever, a $40 billion agreement to build a million affordable housing units in Egypt.
Among other stocks that lifted Dubai on Thursday were Emaar Properties and Dubai Islamic Bank, up 3.7 and 4.6 percent respectively.
Both, along with Arabtec, have fallen on profit-taking this month after making solid gains in the run-up to their inclusion in MSCI's emerging market index at the end of May. The index compiler upgraded a total of 19 stocks from the UAE and Qatar.
Port operator DP World, which trades on a different exchange, Nasdaq Dubai, and also joined the MSCI benchmark, fell 1.3 percent in thin trade after news it was raising $1 billion with a 10-year convertible bond issue to fund growth opportunities and diversify funding.
Abu Dhabi's bourse continued a cautious recovery, adding 1.1 percent on the bank of blue chips such as Abu Dhabi Commercial Bank and telecommunications operator Etisalat, which rose 2.0 and 0.9 percent.
Etisalat sold $4.3 billion worth of bonds on Wednesday, setting one record as the region's biggest corporate issue ever and another for the cheapest pricing.
While analysts say selective buying in the UAE markets may continue as many retail investors are sitting on cash, the upside may be limited in the sort term because of the approach of the summer lull and in the medium term by already-rich multiples.
"The UAE is really stretched. There is always great appetite on the sidelines, ready to give support to the market on dips," said Fahd Iqbal, head of Middle East research at Credit Suisse private banking in Dubai. "Before turning more positive, I'd like to see the UAE market stabilise."
Some market participants may have overestimated the impact of the MSCI upgrade, Iqbal said, which is likely to be long-term and gradual, attracting both new investors and issuers and increasing the breadth and depth of the market.
As a result, the market may need to "grow into its rich price-to-earnings multiples", he said.
"The UAE is still in a very early stage of the earnings recovery cycle, with EPS (earnings per share) forecasts having returned to just 2010 levels, although the quality of earnings today is far better."
Qatar's bourse also finished the week on a positive note, edging up 0.5 percent. MSCI component Masraf Al Rayan was the main support, rising 1.7 percent.
With gains of 24 percent this year, Qatar is the third best performing market in the region after Dubai and Egypt, which have risen 38 and 29 percent. This has put pressure on dividend yields, a metric often applied to the local market.
"In Qatar, which is a dividend play and not a growth one, dividend yields were over 6 percent before the MSCI announcement," Iqbal said. "Since the rally, they have contracted to 4.5 percent. Historically, they don't go lower than that."
Egypt's index edged up 0.4 percent to 8,746 points, approaching the six-year closing high of 8,763 points which it hit last month. Blue chip Commercial Bank International was the main support, up 1.1 percent.
Former army chef Abdel Fattah el-Sisi was sworn in as president this week, giving the country an elected leader for the first time in almost a year.
MSCI said on Wednesday it was no longer considering a public consultation on removing Egypt from its emerging market index. Meanwhile, analysts see an offer by a group of investors to buy a 20 percent stake in investment bank EFG Hermes as a sign of improving confidence, though details of the offer are not yet known.
"These kinds of deals indicate there is renewed interest in Egypt from investors," says Harshjit Oza, assistant director of research at Naeem Holding in Cairo. "It is starting with Egyptians, but I am sure foreigners will follow."
DUBAI: The index rose 3.7 percent to 4,837 points.
ABU DHABI: The index rose 1.1 percent to 4,932 points.
QATAR: The index added 0.5 percent to 12,979 points.
EGYPT: The index rose 0.4 percent to 8,746 points.
SAUDI ARABIA: The index edged down 0.5 percent to 9,827 points.
KUWAIT: The index pulled back 0.5 percent to 7,244 points.
BAHRAIN: The index added 0.2 percent to 1,460 points.
OMAN: The index edged down 0.2 percent to 6,908 points. - Reuters