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Dubai: We are already at the halfway stage and only 30-odd of the 260 regional funds tracked by Zawya Funds Monitor have posted double-digit returns. Many of the funds have notched up only low single-digit returns while many more have fallen knee-deep in the red.
The regional markets themselves have seen mixed results with two of the three most active markets faring poorly so far this year.
The Saudi Tadawul is down nearly 12.50 per cent this year, while the Dubai Financial Market index is down nearly 6.5 per cent. However, the stable Kuwait market continues its upward trajectory, with a 24 per cent rise.
Some of the less liquid regional markets have also galloped ahead. The Doha Securities Market Index has jumped more than 25 per cent, Muscat 27 per cent and Abu Dhabi nearly 13 per cent.
Many asset managers argue that summer is an ideal time to dig deep and invest in the markets.
"The summer lull is upon us and many of the markets are moving sideways," says a Dubai-based asset manager. "Oil price rises have been factored in. So, barring a few surprises, the markets are going to remain quiet, which is a great opportunity to accumulate shares at cheap valuations."
True, valuations in the Gulf are quite attractive at the moment. The GCC's collective price-to-earning (P/E) ratios stand at 16.79, attracting the eye of a number of foreign investors who are picking up bargains. For all the upward momentum in the past few years, Kuwaiti companies' PE is at 13.79; while companies listed on Dubai have an average PE of 16.5, Abu Dhabi 14.84 and Bahrain 12.40.
Catalyst
The Saudi market has also come down to more realistic levels, at 18.39.
Tariq Qaqish, fund manager at Al Mal Capital, thinks second quarter results could be a catalyst for the markets. "Saudi companies are expected to grow at 20 per cent to 25 per cent in the second quarter and that could boost the markets. Similarly, UAE companies are also expected to perform well during the second quarter."
Over the medium-term, valuations are looking attractive with large caps trading at a substantial discount to the broader market once more, says an EFG-Hermes report. "With earnings growth expected to accelerate into second-half 2008 and 2009, we see support for a strong sustained recovery in the index going forward," it says. "Also, any clarity regarding foreign ownership allowance would result in a considerable rally."
Only Doha looks overpriced at 21.40. "The index should be supported by continued robust earnings growth and strong Western institutional demand, however the 25 per cent foreign ownership limit on most stocks will act as a brake on further upside eventually," says EFG. "Near term, we see risk of profit-taking given the recent strong rally and current rich valuation."
Distracted
In the UAE, investors continue to be distracted by the property market, which has been delivering better results than stock markets. "Until the property market stabilises, investors will continue to favour the real estate sector over the stock market," says Qaqish, adding that he expects the property sector to cool down once the full freehold laws are in place, with investors returning to the market.
Clearly, the market is losing its appeal for day traders, who may find the sideway movements of the markets unappealing. And this is where the long-term investors such as mutual fund managers are taking advantage.
With long-term fundamentals in good shape, regional fund managers are in an accumulation mode this summer, waiting for the major markets to turn the corner.
The writer is managing editor, Zawya.com
Until the property market stabilises, investors [in the UAE] will continue to favour the real estate sector over the stock market."
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