"We see that the market has catalysts to grow and we have cautious optimism on the market".
Dubai-based Daman Investments is optimistic about UAE stock markets and said low valuations and government initiatives are expected to trigger markets rebound.
“We see that the market has catalysts to grow and we have cautious optimism on the market,” Ali El Adou, head of asset management at Daman Investments told reporters on Sunday.
El Adou noted that valuations of UAE markets have been low compared to emerging markets in the past seven years. “Versus regional markets we’re cheap, versus other emerging markets we’ve never been cheaper,” he said.
The continued strength in oil prices as well as government spending and other initiatives should drive a rebound in local markets, El Adou said.
UAE markets underperform
A report from Daman Investments noted that Dubai’s stock market index fell 17.3 percent from the start of 2017 to date and was the second worst performer in the GCC, just ahead of Oman that dropped 35 percent during the same period.
Abu Dhabi’s index gained 17 percent during the period, but taking out First Abu Dhabi Bank (FAB)’s performance, the index would have been the third worst performer, dropping 9.5 percent.
FAB, which constitutes 44.13 percent of the Abu Dhabi index weight, gained more than 50 percent during the period, data from Refinitiv’s Eikon showed.
According to El Adou, the economic slowdown in the UAE, rising geopolitical tensions, upgrade of Kuwait and Saudi Arabia to the emerging market indices, the lack liquidity in the markets and a decline in investor confidence contributed to the poor performance of the UAE stock markets.
Poor corporate governance is also one of the reasons behind the decline in investor confidence, he said.
According to the report, volumes of stock traded dropped each year from 2015 to 2018 for both Dubai and Abu Dhabi.
For 2019, the year-to-date average daily value traded dropped 23.9 percent in Dubai but it rose 46.7 percent in Abu Dhabi.
Rebound catalysts
El Adou expects markets to rebound due to the continuing strength in oil prices and increasing government spending.
Brent oil prices have added close to 15 percent so far since the start of 2019, data from Eikon shows.
Ghadan 21, a 50 billion dirhams package of reforms announced by Abu Dhabi, Abu Dhabi National Oil Company's (ADNOC) plan to spend 486 billion dirhams between 2019 and 2023, the Expo 2020 in Dubai and other economic initiatives could boost markets, the Daman Investments report said.
Consolidation within the banking sector and an increase in foreign ownership are also seen as key catalysts.
Daman, in its report, stated that the company is optimistic about local markets’ outlook and believes, “this is the right time to invest in the UAE markets” given cheap valuations and the catalysts discussed.
Listing Plans
Daman Investments in 2014 talked about its plans to list on the Dubai Financial Market by the first quarter of 2015. However, the listing did not happen due to falling oil prices.
Shehab Gargash, chairman and founder at Daman Investments said: “We don’t have any plans to list at the moment,” noting that they do not rule out a listing in the future.
The company has been planning to launch two new funds, a balanced fund and a shariah-compliant offering. (Read more here). El Adou told Zawya that the balanced fund is in final stages before launch, pending regulatory approvals.
Raghu Mandagolathur, an analyst at Marmore (a subsidiary of Kuwait Financial Centre, Markaz) told Zawya: “The total assets under management of funds domiciled in GCC countries has increased by 14.8 percent as of July 2019 to $35.8bn compared to October 2018 levels.”
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