Dubai stocks may escape post-dividend slump

DUBAI: A resurgence of the Dubai stock market's rally last week suggests it may escape a slump which it traditionally suffers around this time of year, thanks to a belief that the emirate's economy is still in the early stages of an upswing.
The stock market has dropped during the month of May in four of the past five years, partly because investors tend to sell shares after annual corporate dividends are decided and paid. After taking profits on gains made in the early part of each year, some investors temporarily withdraw from the market, returning only after summer holidays.
This year the pattern may be different, however. The main market index has in the past two days shot up to levels last seen in December 2009, suggesting a lot of profits are getting ploughed back into the market rather than stored in bank accounts.
"A lot of the dividends have started to arrive and shareholders have decided to put most of them back into the market,” said Mohammed Ali Yasin, managing director of Abu Dhabi Financial Services. “There is a great return opportunity for them.”
He added, “The trend is different this year in terms of performance. People are picking blue chips in anticipation of first-quarter earnings."
The market index is up 21 percent so far this year, which in normal times would be encouraging investors to take money off the table and wait for dips to buy stocks.
At present, however, many people are looking for fresh reasons to buy. Some are seeking what they consider laggard stocks in sectors that have already risen strongly.
Shares in Dubai Islamic Bank, for example, are up 14 percent in the past four days in heavy trading after they had underperformed bigger banks listed in the United Arab Emirates.
One trigger for this week's surge was news that the bank had paid back 3.8 billion dirhams ($ 1.03 billion) in government aid that it received during the 2008 global financial crisis.
Also, Dubai Islamic plans to buy out and delist mortgage lender Tamweel; this could give it a potential capital gain of 650 million dirhams, according to Arqaam Capital.
Another laggard which attracted heavy interest this week is construction firm Drake and Scull. Its shares are up nearly 10 percent in the past four days, partly because of unconfirmed talk that the company could become a takeover target.
Many investors are focusing on the fact that Dubai's main index is still a staggering 69 percent below the peak it hit in 2008, before the global crisis and Dubai's own property market crash. With the emirate's property prices now recovering, that discount looks unreasonable to some investors.
“Dubai’s market is not overbought and the trend looks healthy,” said Zeki Muderrisoglu, fund manager and senior technical analyst at NBAD Asset Management.
“If you’re looking for a long-term view, it’s very positive over the next five years. We are at very low levels historically.”
There are risks for Dubai's uptrend. One is that first-quarter corporate earnings, to be released towards the end of April, may disappoint.
Another risk is the attitude of foreign funds in an unstable global environment; they were slow to come back to Dubai as its rally began last year, and could be quick to pull out in response to international trends.
Nevertheless, it would take a lot to knock the market back sharply in its current mood. Evidence of that came this week when shareholders in Emaar Properties, Dubai's top property developer, voted on its annual dividend.
Last month the company's management proposed a dividend of 10 fils a share, flat from the previous year. The stock, which is up more than 40 percent year-to-date, surged in recent weeks partly because investors were betting that the shareholder meeting might pressure management into hiking the dividend.
This did not happen; the meeting, held on Tuesday, confirmed the dividend at 10 fils. But the stock price barely blinked at this disappointment, falling only 1.8 percent on Wednesday.
“We should expect the market to take a breather, which would make sense, but at the same time it’s difficult to find sellers,” said Sebastien Henin, portfolio manager at The National Investor.
“Maybe the rebound was too fast but they say never go against the trend, which is definitely positive.”
FROM: REUTERS