Investors are bracing themselves for an unsettled final three months of the year for UAE stock markets after a turbulent third quarter, as the IMF warns that emerging economies face their fifth consecutive year of slowing growth.
Headline indexes in Dubai and Abu Dhabi closed in positive territory on the first day of the fourth quarter yesterday, after each recorded their worst quarterly performance of the year for the three months to the end of last month.
Emerging markets were set for a fifth year in a row of declining annual growth this year, Christine Lagarde, the IMF’s managing director, said on Wednesday, with the global economy standing at “a difficult and complex juncture”.
MSCI’s Emerging Market Index fell 18.5 per cent during the three months to the end of last month, its worst quarterly performance for four years, dragged down by falling commodities prices, China’s economic slowdown, and the prospect of higher US interest rates before the end of the year.
Faced with such uncertainty, monthly trading volumes on Dubai’s stock exchange fell to a four-and-a-half-year low last month.
“Volumes will stay low while we wait for the impact of third-quarter earnings,” said Rami Sidani, the head of Middle East and North Africa equities at Schroder Investment Management in Dubai.
“There’s going to have to be a stabilisation within emerging markets and the price of oil to see any kind of revival. Until then we’ll continue to see uncertainty.”
UAE companies, however, begin the final quarter of the year having shown their resilience in the face of the collapse in oil prices, according to Sebastien Henin, the head of asset management at The National Investor in Abu Dhabi.
“When we were waiting for first-quarter results, there were lots of questions about the impact of lower oil prices on bottom lines, but they turned out OK,” said Mr Henin.
“This time around investors are pretty comfortable, and there are generally fewer worries about companies’ health.”
Nevertheless, question marks still remained over the prospects of construction companies such as Arabtec Holding and Drake and Scull International, said Mr Henin.
Meanwhile, the UAE’s banking sector is likely to experience slower earnings growth over the coming quarters because of rising credit losses, declining real estate transactions and a drawdown of deposits by governments and government-related entities, according to Standard & Poor’s.
“We expect Gulf banks’ net income growth to decline below 10 per cent this year and potentially slow further next year,” said Suha Urgan, an analyst at the credit ratings agency.
The Dubai Financial Market General Index fell 12.1 per cent during the third quarter, while the Abu Dhabi Securities Market General Index escaped relatively unscathed, down just 4.7 per cent for the period thanks to a 5.2 per cent rise by Etisalat shares, the index’s second-heaviest weighted stock. Global investors pulled an estimated US$40 billion from emerging market assets in the third quarter, according to data from the Institute of International Finance, making it the worst quarter since the end of 2008.
An estimated $19bn was pulled out of equities and $21bn out of debt, the Washington-based finance industry body said in a report issued late on Tuesday. Dovish signals from the US Federal Reserve’s September policy meeting provided only a short-lived boost to emerging market flows. The investor sell off represents the largest reversal since the fourth quarter of 2008, the height of the financial crisis, when emerging markets saw $105 billion in outflows, the IIF said. “Concerns about Fed lift off are … likely to have added to recent market volatility, which seems to have weighed on EM portfolio flows,” the IIF said.
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