UAE's Stock Market May Be Over-Valued, Say Analysts

by Lorys Charalambous, Tax-News.com, Cyprus

07 June 2005

Strong economic growth, high oil prices and money flows should maintain the value of stocks traded on the United Arab Emirates markets, although analysts believe that the strong gains in share prices in the first half of 2005 are unlikely to be repeated.

Investors have been lured to the UAE market by high company profits in the first quarter and low interest rates, driving up the value of the UAE index by 87% since the start of the year.

Stock indices in other Gulf Cooperation Council countries have also risen strongly in 2005 but not at the frenetic pace of the UAE market. For example, in the same period the Qatar market has risen 60%, Saudi Arabia 53%, Oman 46%, Kuwait 37% and Bahrain 22%.

Analysts believe that these markets are a much more promising investment in terms of value due to the fact that that the UAE stock market trades at a price to earnings multiple of 34, based on previous year's earnings. This is less attractive than the price to earnings ratio of less than 20 for the Kuwait and Oman markets.

However, economic growth, record oil prices and strong money flows from west to east are likely to keep the market buoyant, according to observers. With Dubai's GDP set to expand by 10% in 2005, following 16.7% growth last year, reports suggest that few are anticipating a downside correction, despite the fact that many firms are unlikely to repeat the large one-off gains that have contributed to profits.

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