UAE stocks to offer best returns in 2018
dubai — Foreign inflows into the UAE equity market continue in 2018 with MSCI UAE index likely to gain 10 per cent with Emaar Development and First Abu Dhabi Bank are the best picks for this year, according to investment bank EFG Hermes Research.
“Overall, I think if we don’t have big correction in oil prices or any geo-political factors affecting the market, we see return of 10 per cent on MSCI UAE index. We like UAE’s macro-economy picture and valuations of local stocks,” said Mohamed Al Hajj, strategist at EFG Hermes Research. The UAE has seen net foreign inflows of 100 million year-to-date with GCC inflows remaining flat.
He pointed out that the UAE bourses need more listings from sectors that are under represented in order to attract more foreign inflows. “Stock market needs more listings in sectors that are under representative in the economy. For example, Adnoc IPO was successful because of a novel sector. The UAE market is the most owned market in Mena both by GCC and foreign investors as percentage of market cap. But to attract more inflows, we need more listings in sectors that are not there. Banks and real estate are very well owned; so is Etisalat,” he said.
“Until we see the new listings
We expect emaar development to join the MsCI uae index in May which could attract $100 million in passive inflows Mohamed Al Hajj, Strategist, EFG Hermes Research
coming in the sectors that are underrepresented, UAE companies can attract foreign investors by increasing foreign ownership limit. For example, Etisalat opened to foreigners in 2015 and its stock price doubled; it attracted $1.5 billion inflows in a span of 12 months. Similarly, if du opens up for foreign investors, you can see decent inflows. Emirates NBD is closed to foreigners today, therefore, it is trading at 20 per cent discount to UAE peers.”
As per UAE company law, foreigners can own up to 49 per cent.
Top picks
According to Al Hajj, Emaar Development and First Abu Dhabi Bank are the best picks for this year. Emaar Development is the top pick as it could be included in the MSCI UAE index during the next meeting in June and First Abu Dhabi due to increased liquidity. “FAB is particularly the name we like for this year. There is a very important catalyst for FAB in H2 2018. Previously, NBAD which acquired FGB was not very liquid, so as part of the global indices, they had an adjustment factor to their weight of 50 per cent. The weight in the index was cut by 50 per cent. Since the merger, the liquidity has improved a lot and we expect MSCI to remove that adjustment factor in November. This could lead to $260 million of passive inflows into FAB. An active money that goes into stock could also be same amount or even higher,” he said, adding that “we expect Emaar Development to join the MSCI UAE index in May which could attract $100 million in passive inflows.”
Al Hajj revealed during an interview with Khaleej Times that global index provider MSCI will hold meeting in June where it will decide whether to retain or not the companies not allowing foreign investors to vote in its indexes.
“MSCI Index provider is currently consulting whether stocks that don’t offer voting rights to all shareholders including foreigners should be part of index or not. They will decide on this in June. And if they say that stock need to have voting right for foreign investors as part of assimilation that they have, Etisalat – which is the biggest stock in MSCI UAE – could be one of the potential stocks that could be removed from the index. The total passive money in Etisalat today is about $600 million. But MSCI gives 3-year grace period to companies when removing from index.”