UAE Macro and Equity Market: Continued Focus on Strategic Investments amid Robust Economic Performance

UAE Macro and Equity Market: Continued Focus on Strategic Investments amid Robust Economic Performance     UAE Macro and Equity Market: Continued Focus on Strategic Investments amid Robust Economic Performance

Surviving the regional tensions kept distinguishing the United Arab Emirates (UAE) that focused during the third quarter on boosting tourism, social welfare and financial activity. The UAE also plans to install 7 new power plants by 2020 targeting the increase of the existing capacity by one third. In addition, Etihad Rail which is funded by UAE’s federal government will launch the second phase of its $11B national rail network that covers 628 km.

The economy of the UAE continued to withstand the undesirable waves of violence and instabilities painting the neighboring countries due to its appropriate strategies and governmental management. As a matter of fact, the International Monetary Fund (IMF) estimated economic growth to stand at 4.3% by the end of 2014 compared to 5.2% in the previous year. The consistent growth was also mirrored in the performance of the non-oil producing private sector that saw an increase in new orders and new export orders. In this context, the UAE’s Purchasing Managers’ Index (PMI) improved to 57.6 in September 2014 compared to 56.6 a year ago which is above the expansion contraction frontier of 50. The average inflation rate, up to the 3rd quarter, in each of Dubai and Abu Dhabi touched the 3% mainly on rising housing and education prices.

Authorities maintained their efforts to boost tourism in the Emirates and focused in Q3 2014 on medical tourism, eyeing half a million medical tourists by 2020. In this context, the UAE modified, in August this year, its visa policy and announced a 3-month renewable visa for medical tourists and their companions. Another rule took effect at the beginning of August that aims to boost cruise tourists by providing them with multiple-entry visas for all the UAE ports in their itinerary for $55. In addition, airport passengers at Dubai International Airport (DIA) rose 6.2% y-o-y to 52.42M by the end of September this year. Al Maktoum International Airport, the 4-year-old airport, started a $32B expansion plan to become the world’s largest and busiest airport by handling 120M passengers within 6-8 years.  

Dubai remained the leading country in the Middle East in terms of occupancy rate. Even though the rate posted a slight dip of 2 percentage points (p.p), yet it remained the highest at 77% by September 2014. In Abu Dhabi, occupancy rate improved by 1 p.p going from 75% by September 2013 to 76% during the same period this year.

Externally, the Emirates are expected to post a trade surplus of $118.7B by the end of 2014 narrowing from the $122.4B recorded in 2013. The narrowing surplus will result from imports growing (+6.0%) at a faster pace than exports (+2.9%). The former will stand at $248.3B by the end of 2014, while the latter is expected to settle at $367.0B.

UAE’s perseverant attempts to diversify its economy away from oil are starting to bare fruits. The Emirates’ strategy was highlighted in the 5% yearly increase of non-hydrocarbon exports to $249.9 expected by the end of 2014 and the 1.4% yearly downtick realized in hydrocarbon exports, which almost constitute 32% of total exports.

Public finance in the UAE kept on revealing positive results, yet a slower pace. The consolidated fiscal balance is expected to narrow in 2014 by 11.1% y-o-y to stand at $37.07B if net loans and equity are excluded from expenditures. Consolidated revenues are estimated to slightly increase by 0.8% y-o-y to $138.61B or 32.3% of GDP, while the consolidated government expenditures (excluding net lending) will stand at 23.7% of 2014’s GDP or $101.54B. Spending will remain at the heart of 2015’s federal budget draft as half of it will be dedicated to social development and welfare. UAE’s federal budget for 2015 totaled $13.4B, which is 8% higher than that of 2014.

On the monetary front, the UAE showed satisfactory yearly performance in the first nine months of 2014. M3 widened by 12.1% y-o-y to reach $362.93B by the end of September 2014. As for total bank assets, they edged up by 21.0% to settle at $624.05B compared to $515.95B by September 2014. Lending activity was also on the rise mainly boosted by investors’ confidence and the overall positive sentiment reigning the country. In this context, total bank loans and advances were up by 27.1% to $373.11B. Similarly, total deposits increased by a yearly 11.4% to $381.92B.

Financial markets in Dubai and Abu Dhabi maintained the upward trend during the 3rd quarter of 2014. Dubai Index surged 83% y-o-y by the end of September 2014 to reach 5,043 points, while Abu Dhabi index edged up by 33% to 5,106 points.

While the average daily traded volume on the Dubai stock exchange narrowed by 23% y-o-y in Q3 2014 to 501.01M shares, the average traded value grew 62% over the same period to $337.22M compared to $208.44M in Q3 2013. The number of transactions edged up to 517,180 in Q3 2014, up from 395,756 in Q3 2013. As for market capitalization, it broadened by an annualized 66% to $94.26B by September 2014.

With respect to Abu Dhabi’s Stock Exchange, and despite the positive yearly performance, the average daily volume traded tumbled to 112.37M shares worth $80.74M in Q3 2014 compared to 190.15M shares valued at $99.24M recorded a year earlier. Yet, the market capitalization widened by 23% y-o-y to $115.75B, with the number of transactions reaching 143,690 in Q3 2014, down from 204,025 in Q3 2013.

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