Dubai’s Emaar Properties surged to a four-year high Sunday as upbeat research reports from international banks bolstered demand from local and foreign investors, while oil price gains helped lift most Middle East markets.
Emaar, the Dubai Financial Market’s largest listed company, climbed 5.7 percent to 5.01 dirhams, its highest finish since November 2008.
Since that peak, Dubai property prices have slumped, ravaging the sector and leading to a slew of canceled or postponed projects.
Emaar has sought to offset this slump by diversifying into retail and hospitality and its shares are up 34 percent in 2013.
In a Feb. 4 report, Bank of America Merrill Lynch gave Emaar a buy rating and a target price of 5.3 dirhams, while HSBC’s Feb. 7 report set the developer a target price of 6 dirhams and an overweight rating.
“We continue to be surprised by the strength in the Dubai property market, on the residential, hotel, and retail side,” HSBC wrote. “Supply additions are still a concern but not as much as in the past.”
Traders say these reports have buoyed sentiment for Emaar, with property prices also bottoming out and even increasing in some districts after declines of about 60 percent from their 2008 peaks.
Investors also seem to have shrugged off Emaar’s 28 percent drop in fourth-quarter profit.
“The market saw a lot of institutional interest in Emaar today, which is mainly due to its potential upside in revenue in 2013 and expectations for high dividend yields,” said Marwan Shurrab, vice president at Gulfmena Investments. “We’ve been seeing a lot of [analyst] upgrades from major houses and that’s helping raise interest from institutional investors abroad, bringing in new cash to our market.”
Dubai’s index climbed 2.2 percent to its highest finish since Nov. 30, 2009 and up 17.1 percent this year.
The benchmark now has a relative strength index reading of 75.2 – a value above 70 typically indicates it is overbought – and it followed a similar pattern last year when an early-year surge petered out from early March.
Yet 2013’s rally appears more convincing, said Sebastien Henin, portfolio manager at The National Investor in Abu Dhabi.
“It’s very different from last year, which was extremely speculative with movement in penny stocks and high-beta names – this time it’s mainly driven by blue-chip stocks,” he said.
Oil price gains – Brent crude hit a nine-month high Friday – have underpinned foreign interest in regional equities and stocks from the United Arab Emirates in particular.
“This will be the main theme in the coming days,” said Henin. “We’re starting to see sector rotation towards banks – results were pretty good and their dividend yields are extremely attractive in the current world of low interest rates.”
In Kuwait, late buying helped the main price index rise 0.07 percent, nearing Tuesday’s nine-month peak.
“Speculation is the driving force behind the appreciation in stock prices,” said Naser al-Nafisi, general manager for Al-Joman Center for Economic Consultancy in Kuwait.
The market slumped to an eight-year low in November as Kuwaitis took to the streets to demonstrate against changes to electoral rules that opponents said would benefit the government and sideline critics. Since then, the political temperature has cooled and shares have rallied, helped by equity buying by state-linked institutions.
Saudi Arabia’s index ended slightly higher for a second day in thin trading as an early-year rally ebbs, helped by Saudi Basic Industries (SABIC).
SABIC, the Gulf’s largest listed company, climbed 0.8 percent to ease away from Saturday’s month-low.
Etihad Etisalat (Mobily) and Samba Financial Group added 1 and 0.7 percent respectively.
The kingdom’s share index climbed 0.2 percent to 7,012 points, taking this year’s gains to 3.2 percent.