MIDDLE EAST & NORTH AFRICA (MENA)
PART I: UNITED ARAB EMIRATES
Aksel Kibar
24 November 2008
MENA is an acronym for Middle East and North Africa, which consists of the countries like Saudi Arabia, Jordan, Kuwait, Bahrain, Qatar, UAE, Oman, Egypt and Morocco. According to the Oil and Gas Journal, the MENA region owns about 70% and 46% of the world's proven oil and natural gas reserves, respectively.
Governments have boosted infrastructure spending to support economic growth in the region. Investment in tourism and manufacturing is also driving economic growth in the region, and reducing the region's dependence on oil revenues.
Equity markets in the Gulf region traditionally had varying degrees of restrictions on direct equity investment by foreigners, but most countries are taking steps to further reduce these foreign ownership restrictions.
UNITED ARAB EMIRATES (U.A.E)
ABU DHABI
Abu Dhabi is the capital and second most populous city in the United Arab Emirates (UAE), after Dubai. It is also the seat of government of the emirate of Abu Dhabi, which is ruled by Khalifa bin Zayed Al Nahyan - the President of the UAE. Abu Dhabi is the wealthiest emirate of the UAE in terms of Gross Domestic Product (GDP) and per capita income.
The emirate of Abu Dhabi is located in the oil-rich and strategic United Arab Emirates and is an active member of the Gulf Co-operation Council (GCC). It borders with the Kingdom of Saudi Arabia and the Sultanate of Oman. Abu Dhabi city is on an island located less than 250 meters from the mainland and is joined to the mainland by two bridges.
Abu Dhabi plays a large role in the world economy. Abu Dhabi's sovereign wealth fund, the Abu Dhabi Investment Authority (ADIA) is the world's wealthiest sovereign fund, in terms of total asset value.
DUBAI
Dubai is one of the seven emirates and the most populous city of the United Arab Emirates (UAE). It is located along the southern coast of the Persian Gulf on the Arabian Peninsula. Dubai has been ruled by the Al Maktoum dynasty since 1833. Dubai's current ruler, Mohammed bin Rashid Al Maktoum, is also the Prime Minister and Vice President of the UAE. The emirate's revenues are from trade, real estate and financial services. Revenues from petroleum and natural gas contribute less than 6% of Dubai's economy. Dubai has attracted worldwide attention through innovative real estate projects and sports events. The Jebel Ali port in Dubai, constructed in the 1970s, has the largest man made harbor in the world and was ranked eighth globally for the volume of container traffic it supports. Since 2002, the city has seen an increase in private real estate investment in recreating Dubai's Skyline with such projects as The Palm Islands, The World Islands and Burj Dubai.
This week's ADIC's TECH TALK will analyze the two UAE stock markets from the MENA universe. The UAE stock market history dates back to 2000. Dubai Financial Market commenced operations on 26th March 2000 (www.dfm.ae ). The Abu Dhabi Securities Exchange (ADX) was established on 15 November 2000 (www.adx.ae). Both markets are dominated by Real Estate and Financial companies operating in the UAE. Trading sessions in the UAE are from Sunday to Thursday between 9:30 a.m. and 2:00 p.m. Pre-opening sessions are from 9:30 a.m. to 10.00 a.m.
Before we start with the UAE markets let's have a look at the MSCI Arabian Markets Index. MSCI Arabian Markets Index was created by Morgan Stanley Capital International (MSCI). It is designed to measure equity market performance in the Arabian Markets. It consists of indices in 11 Arabian countries, 6 from the GCC region and 5 from other parts of Middle East and North Africa. Overall the MSCI Arabian Markets is a good measure of equity market performance in the Middle East and North Africa. The countries from the GCC region are: Kuwait, Bahrain, Oman, Qatar, U.A.E. and Saudi Arabia. The other 5 countries are: Morocco, Jordan, Egypt, Tunisia and Lebanon.
The chart below is the historical price movement of the MSCI Arabian Markets Index since inception. The chart goes back to the last quarter of 2005.
MSCI ARABIAN MARKETS
Created in MetaStock from Equis International
As we go through the markets we see that the regional markets had a strong rally between 2000 and 2005. However at the end 2005, the markets experienced a sharp correction. During the 2005-2006 periods the MSCI Arabian Markets Index lost half its value. During the same time period World Markets were very strong and this resulted in an underperforming period for the region after a strong outperformance versus the World markets between 2003 and 2005. In 2006, the regional markets came back strongly while World markets were weakening. During 2006-2007, Arabian Markets outperformed the World markets. The MSCI Arabian Markets index retraced 62% of the sharp decline of 2006 and reached 900 levels. 2007 was a very good year for the regional markets. We have seen strong rallies from Saudi Arabia, Qatar and UAE with 50-60% returns. However, like every other market, the Arabian Markets were also affected by the global liquidity crunch and slowing economic growth. The MSCI Arabian Markets Index broke down the intermediate term support at 800 levels in the June-July period and warned investors of a clear change in trend. The market fell sharply and lost more than half of its value in the three months period.
ABU DHABI STOCK MARKET (ADSM)
Created in MetaStock from Equis International
In the ADSM, the rally turned into a mania in 2004. The parabolic move ended the 5 year long uptrend in May 2005. During the second half of 2005 and 2006, the market broke down the intermediate term moving averages and signaled an approaching bear market. Only after the first quarter of 2007 could the market could form a base and move above the long term moving averages. The uptrend pushed the index from 3,000 levels to 5,000 levels in 2007. In the first half of 2008, the market weakened and formed a wedge pattern at the top. In August 2008 the ADSM index broke below its 20 week MA support with a long weekly bar and gave the first signal of a correction. The index could not find support at the 50, 100 and 200 moving averages and entered into an intermediate/long term bear market. ADSM broke down its 8 year long trend support at 3,600. The 2006-2007 low is at 2,850. The index is now testing this 2006-2007 low. An important support is the lower boundary of the intermediate/long term parallel trend channel at 2,500.
DUBAI FINANCIAL MARKET (DFMGI)
Created in MetaStock from Equis International
The Dubai Financial Market had a similar pattern as Abu Dhabi. The only difference is their relative performance during different time periods. Dubai is a service oriented economy. The city depends on consumer spending in the service and the real estate sectors. As we go through the relative performance chart we will see that during the 2003 - 2005 real estate boom Dubai outperformed Abu Dhabi. However, starting from 2006 the oil rich Abu Dhabi outperformed Dubai. The next chart will be the relative performances of these two economies over the last 5 years. The Dubai market, unlike Abu Dhabi could not reach new highs in the first half of 2008. The market moved sideways between 5,000 and 6,000 in the first half of 2008. In June 2008, the DFMGI moved below its intermediate/long term moving averages and signaled an approaching correction. The index broke down the 2 year long trend support at 5,000 and fell sharply towards the 2006 low levels at 3,500. However, the index was not able to hold above the horizontal support at 3,500. After breaking down the 3,500 level, DFMGI broke down the lower boundary of the parallel trend channel at 3,000.
ADSM / DFMGI (ABU DHABI vs. DFMGI)
Created in MetaStock from Equis International
The chart above is the relative performance of the Abu Dhabi market versus the Dubai market. In the last 5 years we have seen a cyclical pattern in relative performance. The Dubai market outperformed Abu Dhabi between 2003 and 2006 but relative performance changed direction in 2006. Between 2006 and 2008, Abu Dhabi continues outperforming Dubai.
Aksel Kibar
Assistant Vice President/Portfolio Management
Abu Dhabi Investment Company
www.adic.ae
Disclaimer: Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. Any and all ideas, opinions, forecasts, market analysis or market data, expressed or implied herein, are for informational purposes only and should not be construed as trading recommendations to invest, trade, buy or sell securities and or speculate in any specific futures contract, option or any other market. Any investments, trades, and or speculations made in light of the ideas, opinions, and or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The market data contained herein is believed to be reliable, but has not been independently verified. Accordingly, such data cannot be guaranteed as to reliability, accuracy, or completeness, and as such is subject to change without notice. In no event will ADIC or any of its employees be liable for any information contained herein. Data Source: Reuters, Investopedia.
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