DUBAI: The United Arab Emirates’ stock markets may be in for a rocky few weeks as third-quarter earnings from real estate companies and banks reveal the extent to which the property market continues to slump, despite stronger economic growth this year.
Shares in Aldar Properties and Sorouh Real Estate, Abu Dhabi’s two main developers, sank to all-time lows this week as retail investors dumped the stocks on fears that the quarterly numbers will disappoint.
A lack of participation by institutional investors has left UAE markets vulnerable to sentiment-driven trade and volatility. Abu Dhabi’s benchmark index slumped this week to lows last seen in early 2009, when a global liquidity crunch was hitting Gulf Arab countries. Dubai’s index is at a seven-month low.
Analysts polled by Reuters expect Aldar to post a 119 percent rise in quarterly profit to 139.8 million dirhams and Sorouh to post a 129.6 million dirhams profit. But those profits would still be well below those seen in the boom years, and investors are concerned about the outlook for next year.
"There is no discrimination between Aldar and Sorouh — people are losing faith," said Sebastien Henin, portfolio manager at Abu Dhabi-based The National Investor.
"Visibility in Abu Dhabi is not good; all the signals you see in terms of new (property development) deliveries are not good. We know the sector is not doing well and there will be more pressure in coming months."
With big property projects nearing completion in Abu Dhabi, the housing market will be oversupplied in the fourth quarter with 11,000 new homes, according to a report this week by consultants Jones Lange LaSalle. These will add to pressure on rents.
"Over the past few quarters, you continue to see disappointing results both in Dubai and in Abu Dhabi," said Ibrahim Masood, senior investment officer at Dubai-based Mashreq bank.
"If the delivery situation has improved in Abu Dhabi, it should show up in the results. But if their stock performances are any indicator, I won’t be holding my breath waiting for the numbers to come out."
Banks
Bank earnings may be stronger; analysts polled by Reuters on average predicted an 83 percent third-quarter net profit jump for Emirates NBD, the UAE’s largest lender by assets. But without a recovery in the real estate sector, it may be hard for bank shares to stage an extended rebound.
"Abu Dhabi banks have done well and will continue to be reasonable but I think investors are now coming to grips with a lower growth environment," Mashreq’s Masood said.
"I will be surprised to see attraction in the banking sector. A lot of banks are not seeing volumes growth and competition remains stiff."
Emirates NBD shares were pushed down to multi-month lows last week when the bank was ordered by the government to take over debt-laden Dubai Bank, although analysts said they believed ENBD was large enough to cope with the deal and that it did not signal widespread problems in the UAE banking sector.
Gulf markets could rise if an Oct. 23 summit by European leaders makes major progress in addressing the euro zone debt crisis, but many investors are doubtful.
"I don’t know if we can put a lot of hopes in European leaders to fix their problems quickly. The best strategy right now is to increase your cash —to be cash-rich," TNI’s Henin said.
Egypt
Egypt’s stock market has rebounded 11 percent from a multi-year low of 3,820 points hit in early October, suggesting it has most probably established at least a medium-term floor.
Standard & Poor’s cut Egypt’s credit ratings deeper into junk territory with a negative outlook this week, saying the transition to a new government and the prospect of high budget deficits were threatening economic stability. But the stock market did not react, and traders said this showed much bad news had already been priced in to stocks.
However, turnover may be too thin for a further, extended rally unless there are signs that political stability is improving.
The ruling army council gave a clearer timetable for elections this month, but uncertainty remains over whether the rival political forces unleashed by president Hosni Mubarak’s overthrow will keep to a process that could take years.
