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After a lacklustre first quarter in the UAE equity markets, market participants say the second quarter looks more promising with high liquidity after a strong start to the earnings season. But investors are advised to cherry pick strong stocks with reasonable valuations.
On Thursday, the Dubai Financial Market General Index jumped more than 3.5 per cent higher at 4,079.91, after gaining more than 8 per cent in the previous week.
“2015 is a year of hard work. My view is that this year there would be a lot of divergent macro themes at play, therefore one should focus on fundamentals of individual companies, and avoid companies where fundamentals don’t stack up,” Sachin Mohindra, portfolio manager, at InvestAD told Gulf News.
“This year will be about stock picking with a focus on fundamentals. We already have divergent policies of central banks across the globe and we have the oil price volatility, so I would like investors to focus on good companies and buy them at right valuations rather than second guess broad macro themes,” Mohindra said.
Investors must take into account both the qualitative and quantitative factors before picking up stocks.
“Investors should ascertain, is it a good business? Is it something that can grow on a sustainable basis? And then choose a good company with the best valuation, which could give you good returns over a period of 12 months,” Mohindra said.
Across the region investors should identify 25-30 companies where business fundamentals and valuations are good, and wait for returns to come in, industry participants feel.
The earnings season started on a positive note with results from Dubai Islamic Bank.
“The DFM was down in the first quarter as nobody bought banks ahead of the dividend season. People came back to Dubai and Abu Dhabi after stocks went ex-dividends. If first quarter bank results are better than expected and can convince analysts and investors that they won’t see a squeeze in margins, banks may see a further rally,” said Sanyalaksna Manibhandu, manager of research, National Bank of Abu Dhabi Securities.
The bank’s net profit jumped 34 per cent to Dh850 million, while total income also jumped 19 per cent to reach Dh1.8 billion.
“Banks would be the focus in the second quarter after investors gave a thumbs down in the first quarter looking at slumping crude oil prices. We need to see the trend shown by Dubai Islamic Bank confirmed by other banks. If banks are doing well, that is they are in a position to raise deposits, give loans then that means that the rest of the economy is in good condition,” Manibhandu said.
Investors would also eye the results from Union Properties and other local developers to get clues on Dubai property companies.
Elsewhere in the Gulf, investors are likely to look at Saudi Arabia ahead of its opening up to foreign investors, and also Iran, where world powers get ready to lift sanctions in a country which is home to 80 million consumers.
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