MIDEAST WEEKAHEAD-Dubai not immune to disappointments as stock rally pauses

* Dubai trims year-to-date gains to 13 percent

* Arabtec tumble, Emaar dividend dampen sentiment

* Valuations stopped looking very attractive

* Double top points lower in short term

* Many expect rebound later this year

By Nadia Saleem

DUBAI, March 27 (Reuters) - This year's best-performing Gulf

Arab stock market has stumbled in the last few weeks, and while

fund managers say a strong economic outlook means the long-term

direction is still up, it may be months before the rally

resumes.

Dubai's main equities index jumped about 20 percent

in the first two months of this year to levels last seen at the

end of 2009. It was boosted by signs that the emirate was

recovering from the property market crash and corporate debt

crisis of 2009-2011.

Confidence returned to the real estate sector as residential

property prices began to rebound, and growth in banks'

outstanding bad loan provisions slowed.

But in late February the stock market's uptrend stalled and

this week it has fallen sharply - a reminder of the limits of

Dubai's regained confidence, and its vulnerability to any

interruption in the good news.

Ali Adou, portfolio manager at The National Investor in the

United Arab Emirates, said the economic picture had not darkened

but investors no longer felt Dubai stocks were particularly

cheap.

"The valuations discount between the UAE and other emerging

markets is limited now - that's why a correction is needed for

this discount to widen again and attract investors," he said.

"There isn't a reason to be bearish as the macroeconomic

picture is still intact. A correction would provide an entry to

investors who are looking for exposure to the UAE markets."

DISAPPOINTMENTS

The Dubai index dropped 1.6 percent on Wednesday to 1,837

points, trimming its year-to-date gains to 13.2 percent.

Technical analysis suggests the drop was a bad omen for

coming weeks because the index broke below support at the March

low of 1,860 points. That triggered a double top formed by the

February and March peaks; the height of the pattern points down

to around 1,770 points.

One reason for the recent slide is the passing of the dates

on which shareholders in some companies are entitled to annual

dividends, analysts say; interest in those stocks has suddenly

declined.

But there have been other reasons. The Dubai market has been

weighed down by a 30 percent plunge in the shares of major

construction firm Arabtec after it announced its

intention in late February to raise $1.8 billion of capital.

The announcement coincided with a management shake-up led by

Arabtec's top shareholder, Abu Dhabi state fund Aabar

Investments; in the long run, the changes could help Arabtec

expand around the Gulf. But for now at least, shareholders have

been focusing on the fact that the capital raising could dilute

their holdings.

Another blow was a dividend announcement by Emaar Properties

, Dubai's biggest real estate developer and therefore a

symbol of the emirate's economic recovery. Emaar's shares soared

as much as 52 percent between the end of December and a peak of

5.70 dirhams in mid-March.

But in late February it announced a 2012 dividend of 10 fils

per share - the same level as in the previous two years, but

lower than some investors had hoped. The stock's rally

subsequently petered out and it has lost 11 percent in the last

two weeks.

LONG TERM

Most analysts do not expect such disappointments to have a

long-term impact on the market.

"Emaar at 5 dirhams is close to book value and if your

outlook is positive over the next year and a half, it's still a

good time to buy," said Amer Khan, fund manager at Dubai's Shuaa

Asset Management.

The recent profit-taking should bring back bargain-hunters

in this and other stocks, he added. HSBC has an overweight

rating on Emaar with a target of 7.7 dirhams.

But for coming weeks, possibly months, the market may have

seen its best levels. "Technically, stocks are overbought and

the market will consolidate around these levels or a bit lower,"

Khan predicted.

Adou said budget airline Air Arabia and Aramex

, a package delivery and logistics company, were

proxies for growth in Dubai's tourism and services sectors and

were therefore defensive plays which would outperform during a

market downtrend.

Khan said Dubai's pull-back would ultimately prove healthy

for the market. "On a medium-term view, fundamentals and

valuations have room to fill up. The UAE is recovering and the

blue chips will reflect that."

Source: http://news.yahoo.com/mideast-weekahead-dubai-not-immune-disappointments-stock-rally-155842225--sector.html

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