* 2012 was mixed, often disappointing for Gulf markets
* But many funds looking for strength in early 2013
* Real estate recovery may continue boosting Dubai
* Ultra-low bond yields should help equities
* Saudi petchem outlook murky, but banks may prosper
DUBAI, Dec 20 (Reuters) - Stock markets in the United Arab
Emirates and Saudi Arabia are likely to outperform other Gulf
Arab bourses early next year, buoyed by strong economic growth
and a recovery in Dubai's real estate market, fund managers and
This year was a mixed and in many cases disappointing one
for Gulf equities, as the global financial crisis and
geopolitical tensions weighed on the region's markets despite
healthy growth in its underlying economies.
Dubai's benchmark index is up 17.6 percent so far
this year, exceeding a 14.8 percent gain for the Morgan Stanley
Emerging Market index. On the other hand, Abu Dhabi's
index has climbed just 8.8 percent and the Saudi
benchmark is up only 7.3 percent.
Kuwait, plagued by instability in domestic politics
that shows no clear sign of easing despite this month's
parliamentary elections, has edged up just 3.0 percent.
Qatar's index is down 4.2 percent, indicating
scepticism among investors about the benefits to listed firms of
the tiny country's massive infrastructure building plans.
So any hopes for big equities gains across the region next
year look over-optimistic. But a substantial amount of money is
waiting to enter the markets on dips, which should provide a
firm tone in the opening months of 2013, many analysts believe.
"UAE markets will retain a positive tone until the finish of
the year, given the overall expectation for equities in 2013,"
said Anastasios Dalgiannakis, institutional trading manager at
Mubasher. "On that basis, I would expect more positive
The gradual recovery of Dubai's real estate market from its
2008-2010 crash has been one of the Gulf's top financial trends
It has helped shares in leading Dubai property developer
Emaar Properties soar 44 percent this year, and with
that stock now close to this year's high, it appears possible
for the rally to continue.
Dubai is "emerging as the clear favourite among major real
estate investors across the MENA region. There are indications
that some of the lessons of the last real estate crisis have
been learned," consultants Jones Lang LaSalle said in a report
"The most important of these is the need to adopt a
long-term and coordinated approach, rather than developing too
much real estate too quickly. Providing this increase in
confidence does not result in negative over-exuberance, it is
likely that most sectors will continue to experience some growth
in prices and rentals in 2013."
Another factor sustaining the UAE is high expected dividend
payouts for some stocks. Air Arabia is among the
favourites, with a forecast dividend yield for 2012 of 7.5
percent, according to analysts; Abu Dhabi Commercial Bank
is expected to pay a 5.8 percent yield.
Companies usually announce their annual dividends during the
first-quarter earnings reporting season that starts in January.
"I'm very bullish on Q1 2013. Dubai and Abu Dhabi's markets
tend to rally in the first few weeks of the year, and liquidity
always increases as people position for dividends," said Shehzad
Janab, head of asset management at Dubai-based Daman.
"We're still relatively cheap and we have the dividend-led
uptick coming up."
Dubai's index is currently priced at about 9.5 times
expected 2012 earnings and 8.2 times 2013 earnings, according to
"From an asset allocation perspective, I have a more
sanguine outlook on equities compared to bonds because the
relative attractiveness of bonds has declined with yields
shrinking in the recent rally," Janab added.
UAE markets however, continue to suffer from low levels of
trading activity. This week Al Habtoor Group, one of Dubai's
leading family-owned firms, shelved plans to raise as much as
$1.6 billion through an initial public offer of shares in Dubai
Analysts say stock market conditions have still not
recovered enough to be conducive to IPOs. Trading volume on
Dubai's bourse so far in 2012 is about 33 billion shares,
compared to 106 billion shares traded in all of 2009.
Saudi Arabia, the region's largest equity market, does not
lack trading volume; it has exchanged 76.7 billion shares so far
The market has rallied from an 11-month low hit in late
November, partly because of hopes for an increase in government
spending in the 2013 state budget, which is expected to be
released sometime in the next few weeks.
Prospects for the heavily weighted petrochemical sector,
which has been hit by weak global economic growth, are likely to
limit any further rally.
"We expect the total net income of the ten stocks under our
coverage to decline by 17.6 percent year-on-year...in 2012
mainly driven by the weakness in petrochemical demand and
selling prices," NCB Capital said in a research note on the
Also, there is speculation that the government could raise
the ultra-low domestic selling price for natural gas as soon as
next year, to cut waste. The rise would almost certainly be
modest, but it could hurt the bottom lines of petrochemical
firms which use the gas as a key raw material.
However, banks - the other major sector in Saudi Arabia -
are positioned for more gains on the back of solid economic
growth and a boom in infrastructure and housing construction,
many analysts believe.
"We are expecting 18 percent growth in earnings for banks"
this year, said Faisal Al-Othman, portfolio manager at
Riyadh-based Arab National Bank. "That puts the 2012 estimated
PE at a multiple of 9.2" - still not expensive.