Hasan believes that after the ongoing consolidation and efficiency/cost control measures in the banking sector, its bottom line should be positive for the sector in the UAE.
“Also, telecom and real estate stocks are emerging from their lows. Without any further deterioration in the fundamentals of these two sectors, we expect minimal downward risks arising from the two sectors,” he added.
Hasan advised that the market looks positive from a technical point of view with low double-digit multiples. However, the investor should create a portfolio of different asset classes so that he can get a stable risk-adjusted return.
He noted that Kuwait and Saudi Arabia would see added investor interest due to the MSCI upgrade for Saudi Arabia and talks of an upgrade for Kuwait. The passive flows should be positive for these markets.
“In terms of sectors, we believe the banking sector remains a key driver of growth for the region and the growth is expected to remain sustainable in the near term aligning with economic growth rates,” Hasan added.
“Going forward, the trend is expected to continue with major listed firms maintaining their overall revenues while controlling their discretionary expenditures. Sector-wise, the indexes are well supported by real estate and banking where the markets are expecting for further consolidation. In real estate, there could be pent up demand on back of expected tourist and exhibitor footfall pre-Expo 2020 opening,” Valecha added.
“Owing to the fact that real estate and banking are heavily linked to performance of both Dubai and Abu Dhabi economies, one would be better positioned to have exposure via companies in this sector,” Valecha advised.
“With overall consolidation happening in banking space, major players in the banking space like Emirates NBD, Dubai Islamic Bank and First Abu Dhabi Bank are all set to reap further benefits of this activity as current overcrowded banking scenario diminishes to make way for better customer experience. With regards to stocks in real estate sector firms like Emaar properties, Damac Properties and Aldar are best bet considering their overall exposure across both the economies,” he added.
Overall sentiment in GCC equity markets, according to Valecha, is positive with current uptick in crude oil prices along with diversification away from non-crude sectors across major economies contributing to the sentiment.
Issam Kassabieh, a senior financial analyst at Menacorp, said the banking sector has been the most rewarding for investors over the past six months with the sector index moving up 13 per cent in Dubai and Abu Dhabi and is expected to carry on with this pattern as the past increases in interest rates continue to boost profitability in addition to the banks’ abilities in attracting and retaining customer deposits.
On the downside, he said consumer staples have suffered in both markets due to lower spending and shifts in consumer spending in addition to companies being reactionary to market shifts instead of forward-looking.
“There has been a gap between Dubai and Abu Dhabi companies and their performances possibly due to Abu Dhabi high correlation with energy prices which have impacted the capital’s market while Dubai had seen additional government spending, boosting activity ahead of Expo 2020. Real estate is still acting as a lagging factor in both markets due to an oversupply coupled with other macroeconomic factors in addition to mismanagement of resources on the end of some firms which has resulted in growing losses or retreating profits,” Kassabieh added.
Iyad Abu Hweij, a managing partner at Allied Investment Partners, believes that the trend of growth in net profits will continue across the GCC markets.
“This is occurring as a result of businesses responding to market conditions and trying to cut costs and achieve bigger profit margins. What we can say for certain is that the positive results from 2018 will boost investor confidence and attract investments,” he said.
“In terms of sectors in the DFM and ADX, the real estate and banking will continue to be the most attractive sectors for investors in terms of fundamental ratios and dividend yields, he added.
“We also see a huge potential for the healthcare and education sectors because these sectors are ripe for consolidation. The financial services sector should benefit from the current market conditions, whether from increasing trading volumes, M&A prospects, and new issues and IPOs,” he added.
Dubai had seen additional government spending, boosting activity ahead of Expo 2020
Issam Kassabieh, Senior financial analyst at Menacorp
Source: Khaleej Times