Mideast funds’ confidence in UAE equities at a high
dubai — Middle East fund managers have turned very positive on equities in the UAE and are now more bullish on that market than Saudi Arabia for the first time in 8 months, a monthly Reuters poll showed on Thursday.
Reuters’ latest poll surveyed 13 leading regional fund managers, conducted over the past week. Fifty four per cent of managers now expect to raise their allocations to UAE equities in the next 3 months and none plan to reduce allocations, the most positive balance since January 2017.
In the previous poll, 31 per cent expected to raise UAE allocations and the same ratio intended to reduce them.
Managers cited two major reasons for the shift. One is valuations: Dubai’s performance has left stocks there trading at less than 8 times trailing earnings, compared to about 14 times for MSCI’s emerging market index.
“The underperformance of the UAE market and the undifferentiated sell-off across all stocks, irrespective of long-term fundamentals, has resulted in attractive valuations for some well-managed companies,” said Sachin Mohindra at Abu Dhabi’s Invest AD.
The second factor, Mohindra and others said, is the UAE government’s announcement last week that it will permit 100 per cent foreign ownership of some UAE-based firms, up from the current 49 per cent limit, and grant long-term residency visas of up to 10 years to foreign investors and some professionals. Details of the reforms have yet to be announced and it is not clear how much of an impact they will have in luring investment. For that reason, a stock market rally triggered by the announcement quickly fizzled out.
However, fund managers said the UAE government’s willingness to make regulatory reforms in response to feedback from the business community was a positive signal for the market.
Meanwhile, managers are only moderately bullish on the Saudi market: 38 per cent now expect to raise equity allocations there and 15 per cent to reduce them.
That compares to 38 per cent and 8 per cent respectively in the previous poll. MSCI is to decide in June whether to upgrade Saudi Arabia to emerging market status, following a decision by FTSE Russell in March to do so.
These decisions are expected to attract billions of dollars of passive funds to Riyadh in 2019, so fund managers do not expect any major sell-off of Saudi stocks at present. Nevertheless, with the Saudi market trading at about 16 times earnings following its 10.8 per cent surge this year — leaving it much more expensive than UAE markets — fund flows from the rest of the region into Riyadh may decrease sharply.
“With the MSCI announcement now less than a month away, net foreign buying in Saudi has slowed to a relative trickle with only about $100 million in the last month,” said Akber Khan, head of asset management at Al Rayan Investment in Doha.
“This is after $3 billion had been ploughed in since the start of 2018.”