Dubai has a new record to brag about! The city’s stock market doubled in value this year.
The Dubai Financial Market Index hit a fresh five-year high last Thursday – taking its gains to 100% in 2013 with just a few sessions to go. Bullish local investors happily joined the U.S. Federal Reserve-infused global after-party rally.
While Thursday’s gains were mostly sentiment-driven, Dubai’s spectacular rally this year is remarkable.
After suffering a massive blow from the global financial crisis in 2008 — which left some key Dubai sectors such as real estate in tatters — its economy is now said to recover well on the back of strengthening trade and tourism.
Dubai’s safe haven status amid political turbulence elsewhere in the wider Middle East region helped a lot. Syrian, Egyptian and other African investors transferred their assets in the city.
Add to all this buoyant global stock markets, and the mix was heady enough for investors to push Dubai shares to levels last seen before the financial crisis of 2008.
In addition, Dubai also won the rights to host the World Expo in 2020, adding more cheer to an already very hot market.
The first quarter of 2014 is expected to be a cooling period, because despite the long term promising outlook, much of it has been already priced in.
Dubai’s market is trading at a price to earnings multiple of about 14.7, compared with a pan-GCC P/E of 13.8 and an emerging market P/E of around 12. This means companies will likely have to match valuations with bottom-line profits and dividend payouts.
Moreover, as a matter of fact, the real economic benefits from the expo will only be felt gradually over the coming years.
Many market analysts and traders expect profit taking in the beginning of 2014 to take place as the focus shifts to valuations.
Still, investors have much to look forward to in the first half of the coming year. U.A.E.’s promotion to emerging market status in May will likely bring in some fresh EM-benchmarked funds.
