Dubai Stocks Return to Bull Market After Valuations Plunge

  • DFM General Index rebounds 21% after Gulf markets' oil selloff
  • Trading volume double 6-month average; 14-day RSI rises to 65

Dubai stocks entered a bull market as the lowest valuations in four years lured investors following a selloff across the Gulf region.

The DFM General Index rose 2.5 percent to 3,170.27 on Monday, bringing its gain since a Jan. 21 low above the 20 percent threshold for a bull market. Companies on the gauge traded at an average of 8.7 times their estimated earnings over the next 12 months, compared with 10.9 for the MSCI Emerging Markets Index, according to data compiled by Bloomberg. They traded at 7.2 times expected earnings on Jan. 21, the lowest in four years.

“The price-to-earnings multiples are depressed, the dividend yields are high compared to regional and international markets and the currency is pegged too, so it offers investors protection," said Nabil Farhat, an Abu Dhabi-based partner at Al Fajr Securities. “If oil prices stay at higher levels, then it will last.”

Stocks are recovering from the worst start to a year since 2011 as oil, the biggest source of government income in the six-nation Gulf Cooperation Council, climbs from the lowest level in more than 12 years. While Dubai’s economy doesn’t depend on crude revenue to fund expenditure, it relies on its oil-producing neighbors to spend on tourism, trade and commerce. The GCC, which includes Saudi Arabia, is home to about 30 percent of the world’s proven crude reserves.

Brent crude, a benchmark grade for half the world’s oil, rose 3.6 percent to $34.19 per barrel at 3:55 p.m. in Dubai.

Speculative Stocks

About 629 million shares changed hands on the main index, more than double the six-month average, according to data compiled by Bloomberg. The gauge closed at its highest level since Dec. 6. Dubai Islamic Bank PJSC, the largest Shariah-compliant lender in the United Arab Emirates, led the advance with a 3.7 percent increase.

Dubai's Stocks 14-Day RSI at Highest Since July
Dubai's Stocks 14-Day RSI at Highest Since July

The gauge’s 14-day relative strength index, which dropped as low as 19.1 in January, rose to 65 on Monday, the highest since April. A level about 70 indicates to some investors a security may be overbought.

For the rally to continue, “we will need to see high conviction blue chip stocks move in alignment with speculative stocks,” said Tariq Qaqish, the head of asset management at Dubai-based Al Mal Capital PSC. he said.

The most-traded shares in the emirate included Drake & Scull International PJSC, Arabtec Holding PJSC and Amlak Finance PJSC, which together have a weighting of less than 5 percent of the index. The volume of trading in shares of Emaar Properties PJSC, the developer of the world’s tallest tower which accounts for a fifth of the gauge, was 36 percent below the 30-day average.

Traded Value

Still, the rebound has been supported by a three-month up-trend in the value of shares changing hands. The 20-day moving average for daily turnover has almost doubled since hitting a 31-month low in November to 507 million dirhams ($138 million).

“Investors are more optimistic because of a recent rally in oil prices, they believe most of the bad news is already priced in,” Qaqish said.

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