Interpreting Middle East Economic News and Analyzing Market Trends

Category: Stock Markets

DFM hits 4-year high outperforming S&P 500 by more than double since the beginning of the year

 

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The hottest market nobody is watching – the Dubai Financial Market

Headlines were made around the world when the Dow Jones Industrial Average (DJIA) broke above 14,000 recently reaching a five-year high.  The Japanese market has been making headlines recently as well after the new government pledged to fight the country’s 20 plus years of low growth and deflation.  Headlines aside, what has been the performance of these markets?  So far this year (up to Feb 20), the DJIA is up 6.3% and the Dow Jones Japan Index is up 4.6% in dollar terms.  In yen, the market did better since the yen has been depreciating with the stock market’s appreciation.  This leaves little upside for non-yen investors.

 

One market that has been out of the spotlight is the Dubai Financial Market (DFM).  Since the beginning of the year, the DFM index has gained 22%… in dollar terms (note: the UAE dirham is pegged to the dollar).  See the chart below for a visual comparison of the DFM versus other indexes.

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Saudi Tadawul set to open up to foreign investors… in time!

The Middle East’s largest stock exchange, with a market capitalization of $387 billion according to Bloomberg, is planning on opening up to foreign investors.  Currently, foreigners are only allowed to invest through equity swaps and exchange-traded funds.  This is not ideal if for foreign institutional investors and international money managers.  The Saudi stock market, known as Tadawul, is dominated by local retail investors and some local institutional investors.  Bringing international investors into the Saudi market will greatly improve the market’s liquidity.  Some institutional investors have become optimistic lately that Tadawul will soon open up to them.  Here’s more from Bloomberg BusinessWeek:

Deutsche Bank AG, Europe’s biggest bank by assets, expects Saudi Arabia will soon allow foreigners to invest directly in local company shares, joining hedge fund Passport Capital LLC in predicting the market is set to open.

“I am convinced that the market will open up to foreign investors and part of me is very optimistic it’s going to be soon,” Jamal Alkishi, chief executive officer of Deutsche Securities Saudi Arabia, said in an interview in his Riyadh office Feb. 11. “I think the leadership sees the benefits of doing so, but they just want to make sure that every facet is examined and thoroughly understood before plunging into this.”

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Dubai Financial Market Performance YTD … WOW!

The Dubai Financial Market (DFM) has been on fire since the beginning of this year, up 15% as of yesterday.  Its neighbor, the Abu Dhabi Exchange, is up 10% for the year.  Excellent earnings announcements coupled with a positive outlet for the rest of the year is re-energizing the markets.

Market YTD Return %
Kuwait 6.3%
Saudi Arabia 3.3%
Dubai 14.9%
Abu Dhabi 9.9%
Bahrain All Share 1.9%
Qatar 4.4%
Egypt – EGX30 5.2%
Jordan 4.4%
Lebanon* 2.4%
Morocco* -4.0%
Tunisia* 3.9%

* Traded from Monday to Friday. Returns as of market close on Feb. 4, 2013. Source: Global Investment House

It’s important to note, however, that markets in the Gulf lack the liquidity of larger emerging markets, with the exception of Kuwait and Saudi Arabia.  As such, money flowing in or out can result in huge sings up or down.  For now, investors and market watchers in the region are optimistic that the high-flying performance will the the theme for 2013.