December 5, 2012 12:39 pm

Strong quarter of UAE earnings growth

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Bahraini company earnings dropped the most in the Gulf in the third quarter while companies in the United Arab Emirates outperformed their regional peers.

Bahraini corporate net earnings slumped 45 per cent year on year, according to a report by Markaz, the Kuwaiti investment bank. That compares with growth of 8 per cent year on year for the six Gulf Co-operation Council countries.

Company performance in the oil-rich Gulf has diverged as regional political unrest has lured investors to some and deterred them from others. The United Arab Emirates has benefited from its haven status while countries such as Bahrain have struggled to lure new investors.

Government spending has spurred performance in some sectors. Tension between the ruling Al Khalifa family and the Shia minority in Bahrain has continued since the widespread protests of February last year, harming investor confidence in the Gulf state.

“For the UAE, 2012 has been some sort of comeback year,” says Mandagolathur Raghu, head of research at Markaz, and author of the report. “For Bahrain...there are no positive triggers at the moment to turn round the situation like it did in the UAE.”

While Bahraini companies have suffered, those in the United Arab Emirates recorded strong earnings growth in the third quarter. The aggregate earnings growth of UAE companies added $2.8bn, or 38 per cent more than a year earlier, driven by banks and telecoms, according to the report from Markaz.

That divergence of performance is particularly clear in the telecoms sector. Bahrain Telecommunications Co’s net profit fell 55 per cent in the third quarter while Etisalat, the United Arab Emirates’ top telecom operator, posted a 28 per cent rise in third-quarter profit after it booked gains from a stake sale in Indonesia.

Bahrain’s economy slowed sharply in the second quarter of this year, according to the most recent government statistics. Adjusted for inflation, the economy shrank 1.3 per cent between the first and second quarters after growing 0.9 per cent during the last quarter of 2011.

While the central business district only sees the odd demonstration, its confidence in the country’s political stability has been shaken, damaging the wider economy and the country’s position as a regional banking hub.

The UAE, which has seen no unrest, may now face a different kind of problem, with some analysts saying company shares are becoming expensive for investors.

“Last year was looking outright cheap but both fixed income and equity have had a very good run,” says Fahd Iqbal, markets strategist for the Middle East and North Africa at EFG-Hermes in Dubai.

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