Sell UAE stocks in May and come back in August!

It’s that time of year again. Every year financial journalists dust off the old canard : ‘Sell in May and go away!’ The statistically inclined can rustle up a case for and against. Some try to argue that ‘it’s different this time’, another stock markert cliche.

The argument propounded by brokers in Gulf News today revolved around hopes that the UAE bourse may join the MSCI emerging markets index in June, thereby forcing foreign fund managers to buy the blue chips.

MSCI index

It’s a nice argument, except that it may well not happen because of delays to implementing a new settlement system, and secondly that foreign fund managers could be slow to respond or may not bother.

Besides ArabianMoney does not much like the look of the Q1 results from many companies. The unexpected regional unrest this year has impacted on company profits, and this is going to continue into the second quarter.

Then there are the signs of a new slowdown in global financial markets. The sell-off in commodities over the past two weeks could well be the start of a correction in global equities and that would have a knock-on impact on UAE stocks.

Certainly it has to be admitted that with oil prices sliding back from recent high levels, UAE stock markets are not likely to head in the opposite direction.

Perhaps therefore for the short-term those investors enthusiastically lining up to buy the $500 million Sharjah Islamic Bank bond paying a yield of around 5.5 per cent are right, although with GCC Islamic bond yields hitting a record low of 3.29 per cent this month it is hard to imagine yields falling much more, leaving very little upside for these bonds.

So ArabianMoney agrees with the idea of selling UAE stocks in May. However, we would then take another look at the stock market in early August, and our newsletter may have some interesting recommendations then (sign-up here).

August bottom?

Local brokers might well argue that you should buy now in anticipation of the August bottom in prices, just in case global stock markets continue their recent rally. We just think with oil prices falling and the Arab Uprisings hitting regional profits that would still not be a reason to buy.

Indeed, buying in August will almost certainly look even less attractive than it does now, and few will actually take the plunge then. That is always the way.

The best opportunities to buy stocks always come at the moment of maximum pessimism when there are the least buyers and the most sellers. It is strange how investors are always doomed to repeat the mistakes of the past and it never is different this time!

Have a look around the Dubai Financial Market with ArabianMoney editor Peter Cooper in this new video (click here).