A better-than-expected set of results from UAE banks helped to push up markets in Abu Dhabi and Dubai during July, in what was a mixed month for local stock exchanges during the traditional summer lull.
The Dubai index jumped 7.1 percent during the month, while neighbouring Abu Dhabi’s index climbed 3.2 percent.
Malik Shabbir, an analyst at EFG Hermes, said that second quarter earnings from most of the banks which declared results in July were generally positive.
“Earnings were better than expected driven by lower provisioning and wider spreads,” he said. “Dubai banks had a good quarter relative to the Abu Dhabi banks in terms of loan growth, spreads and provisioning, in our view.”
The stock of Emaar Properties continued to rise, climbing by just over 5 percent during the month, continuing the momentum which began in June when the company announced plans to embark on an initial public offering (IPO) of its UAE development arm. It is planning to float up to 30 per cent of its shares.
Kunal Damle of Bahrain-based Securities & Investment Company, said: “With Emaar, if the UAE property development IPO happens this year, the stock will continue to see interest, thereby helping the broader market.”
Elsewhere in the Gulf, the Saudi market dropped 4.5 percent during the month of July, as weak second-quarter corporate earnings hit the market.
Damle said that petrochemical stocks suffered as a result of “weak product prices due to low oil prices”.
He added: “But we are getting a sense that maybe from the third quarter, Saudi earnings should improve. [The lower] Base effect of last year should also help.”
Shabbir said that the performance of Saudi banks had not been as encouraging as their UAE counterparts: “Loan volumes have been weak, suggesting weak credit appetite and selective lending from the banks.
“Provisioning is trending upward, which implies that credit quality is deteriorating. Spreads, however, have widened, which has partially compensated for weak loan growth.”
In Kuwait, the index rose by 1.3 percent during the month, and Damle said that numbers from the companies that have reported results “have been broadly better than expected, especially banks.”
Optimism has also improved among fund managers. A Reuters poll of 13 leading Middle East fund managers conducted at the end of July found that 38 percent expected to increase their allocations to regional equities over the next three months, compared with 31 percent a month earlier.
Global markets and oil prices
Global markets had started the month on a solid footing, with investors waiting for minutes from the Federal Reserve’s meeting to be released.
The comments from Fed Chair Janet Yellen in the second week of July were construed to be positive, and sentiment was given another boost when China reported upbeat data on exports and imports for June.
The U.S. dollar traded at multi-month lows during July, however, as investors worried about political obstacles to U.S. President Donald Trump's domestic agenda.
However, oil prices recovered after a decline in the previous month. Giorgos Beleris, a Mena region oil research manager at Thomson Reuters, said: “Oil prices soared above the $50/bbl mark in July, recovering losses of previous months. The rally has been fuelled by plateauing output in the US, as mid-$40/bbl prices seen during June have likely mounted pressure for producers.”
Beleris added: “OPEC reaffirmed commitment to the production deal, even though Ecuador abandoned its output cut. Exports of crude oil out of the Middle East are assessed sharply lower for July, according to Thomson Reuters Oil Research.
“The efforts of the OPEC heavyweights in the Middle East, however, are being offset by recovering production and exports in Africa, mainly in Libya and Nigeria”.
Beleris said that the increase in oil prices experienced in July “is likely to start facing some resistance, as further gains may incentivise additional hedges for producers, allowing for a continued recovery in crude oil output in spite of any upcoming volatility.”