Although a report from the Dubai Financial Market (DFM) on April 3rd indicated that turnover had increased by 137% in the first quarter of 2002 over the last quarter of 2001, volumes on the three UAE stock markets have been gradually falling in the last month. Earnings growth in the UAE in the last year has outpaced that of other countries in the region however, according to a Shuaa Capital report of early April. The country's cabinet on March 25th approved the budget for 2002, which sees the deficit reduced to $591m as part of a recent trend. Rising oil prices over the last few weeks, and hopes that the tourism industry will recover, should help to make that target feasible. In a sign that Islamic banking is becoming more prevalent, the Dubai airline Emirates on March 12th said it had signed a landmark deal that would see one of its aircraft entirely financed in accordance with Islamic procedures.
The transaction volume on the Dubai Financial Market (DFM) - one of three UAE stock markets- for the first quarter of 2002 reached Dh970m ($264m), up 137% on the Dh409m it recorded in the last quarter of 2001. These transaction gains came largely from the services sector, which saw volume increase by 220% to Dh706m in the period, with banking increasing by around 48% to Dh263m. Transaction volume in the insurance sector fell however, by some 88% to Dh1.28m. As the bond market has become gradually more active transactions for the period grew from Dh70.76m in the fourth quarter of 2001 to Dh209m in the first three months of 2002.
But generally volume on the three stock exchanges in the UAE, the DFM, the Abu Dhabi Securities Market (ADSM) and the unofficial over-the-counter market have decreased in the last month, with services dominating. In the week ending on March 14th turnover had risen from the previous week to around $30m, falling to $22.6m the following week to March 21st. The first week of April saw a continuing decline to only $19m traded, although the stock values remained steady. According to traders investors are waiting for positive company news with healthy dividends.
An interesting development arose April 7th with reports from London indicating that the London Stock Exchange was interested in buying the DFM, and that Deutsche Boerse from Frankfurt was also considering a bid. However, officials in Dubai were quick to deny that there was any truth in the reports.
A report from Shuaa Capital in early April indicated that although the average price to earnings ratio in the UAE was lower than in Saudi Arabia and Kuwait, the growth in earnings in the UAE outpaced those of the other GCC countries at around 12%. But the report also lamented the lack of new companies listing on the official stock exchanges in Dubai and Abu Dhabi, blaming a lack of pressure from the Securities and Commodities Exchange Authority. It also pointed out that since Emaar Properties became the first UAE company to allow foreign investors last year, no other company has followed suit stifling potential market liquidity and interest.
The country's primary economic driving force remains oil production and export and the cabinet on March 25th approved the budget for 2002. Although the fiscal year begins in January the budget is usually adopted in the spring, with temporary finances covering the interim period. The new budget sees the country's deficit cut by around 2.7% to Dh2.17bn ($591m). This follows a recent trend in deficit cuts, with a deficit of $664m in 2000 and $610m in 2001. Revenue is expected to rise in 2002 to Dh20.98bn ($5.7bn) from $5.56bn in 2001, but the budget statement in the official WAM news agency did not give details of the expected all-important oil price for 2002. The UAE's minister for communications Ahmed Hamid al Ta'ir had said on March 17th that he expected growth in the non-oil sector to continue in the near future and to contribute yet more to the country's economic rejuvenation.
The country's second emirate Dubai is also hoping that 2002 will see a recovery in the tourism industry, which brings the oil-poor city vital income. The Dubai Shopping Festival held during the course of March was seen as an indicator of how the recovery was shaping up, but resulted in conflicting reports. On the last day of the festival, March 31st, organisers claimed that attendance was up five percent on the previous year to reach 2.67m and incremental spending up $60m. However, the word on the street is that the festival appeared less crowded than in previous years and that those who did turn up spent less money.
One of the main participants in the festival, Dubai's airline Emirates, has meanwhile set the tone for financing its future expansion by signing an Islamic financing deal worth $90m, over a 10-year term. This is the first time such as deal has been arranged for an aircraft and highlights a regional move towards Islamic financing. Despite the reputation that Islamic banks have received since September the Dubai Islamic Bank- 30% owned by the emirate of Dubai- announced a 4.23% rise in profits for 2001 over the previous year on March 14th. The bank has repeatedly said that its operations are clean from involvement in terrorist funds and that it has a special unit to counter money- laundering. The international banking giant HSBC also announced on March 31st that it had launched its second Islamic principal protected fund, developed by the bank's global Islamic financial services division.