Dubai’s main stock index jumps four per cent in the opening minutes, rising above the 3,000 point level for the first time since November 2008, after the emirate wins the right to host the 2020 World Expo.
The market is up across the board but is led by construction and property firms, and others which could benefit from another leg up by the real estate market; Dubai Investments, which has land near the Expo site, climbs 5.2 per cent and Emaar Properties gains three per cent.
Neighbouring Abu Dhabi’s index rises 0.9 per cent.
Dubai became the first Middle Eastern city to host an event that will trigger billions of dollars of investment in coming years. Real estate and hospitality firms will benefit from Expo-related infrastructure spending in the long term.
This prospect may push some stocks up their 15 per cent daily limits on Thursday, including Dubai Investments which has land near the Expo site, Emaar Properties, Union Properties and Deyaar Development.
On the other hand, there will be a strong temptation to take profits with the Dubai index already up 79 per cent year-to-date – especially since Dubai’s win was expected, and actual spending for the Expo will be spread over many years.
“We should see a surge in the stock index and later a sell-off. The Expo is priced in but the economic benefit won’t materialise before 2015,” said Ali Adou, portfolio manager at The National Investor in Abu Dhabi.
Fund managers recall that Qatar’s stock market rose 16 per cent in the four months before it was awarded the right to host the 2022 soccer World Cup at the start of December 2010, and gained as much as 14 per cent more in subsequent weeks.
But it then gave up much of those gains and essentially moved sideways for the next two years, as investors realised infrastructure building contracts to prepare for the World Cup would not be awarded immediately, and that the tiny state faced big logistical challenges in staging the event. Qatar’s win was more of a surprise than Dubai’s.
Amer Khan, fund manager at Shuaa Asset Management, said: “Some of the (Expo) expectation was baked into prices but it’s tough to separate how much of it is because of the Expo and how much is earnings growth we’ve seen this year.
“In the near term, the Dubai story remains strong. We may see some profit-taking but valuations in UAE are not expensive at all, and we should continue to see interest from investors as long as earnings continue to support.”
The Dubai index closed at 2,899 points on Wednesday. It faces major technical resistance at October’s multi-year highs of 2,953 points, but this could now break.
“DFM general index will spark a run to challenge monthly target levels of 3,030 by today and then should gradually head higher to 3,100 and 3,251 in the coming weeks,” said Shiv Prakash, senior technical analyst at NBAD Securities Research.
The global market backdrop may boost sentiment in the Gulf in general; Japanese stocks have risen towards a 5-1/2 year peak and oil prices are staying high because of disruptions to Libyan supply.