UAE markets more in sync with the world
Templeton optimistic about the UAE economy, and urges international investors not to see it as just a crude oil play
With the MSCI upgrade, the equity markets in the UAE and Qatar have been integrated with global capital markets, that could help in diversified source of funding, Salah Shamma, head of investment at Middle East and North Africa (MENA) equities at Franklin Templeton Investments Corp told Gulf News.
The global index provider, MSCI, officially upgraded the UAE and Qatar markets to emerging markets from frontier markets after announcing the move in June 2013.
“It’s a positive move in right direction for further integrating the local markets with global capital markets. We cannot operate in a void or in a circumstance where we are detached from the outside world. Further integrating with the international bourses is a prerequisite as it offers diversified source of financing and funding for the economy,” Shamma said by telephone.
The inclusion also helps local companies, and the economy. “Local companies cannot rely on local liquidity whether it is from the banks or governments they need to able to tap global liquidity and usually that lies in the form of global equity or debt markets. As we integrate into international markets, you invite global liquidity, and the liquidity picture improves and even the investor base is much more diversified. With the international capital, we also get to adopt and experience global best practices and reforms, he said.
Optimistic
Franklin Templeton, which had about $894.9 billion (Dh3,287 billion) of assets under management as of last month, is quiet optimistic about the UAE economy, which derives only about a quarter of its Gross Domestic Product (GDP) from oil revenues. “We are quiet optimistic about the UAE economy in the MENA region. It offers an attractive proposition and the economy is very well diversified and has the lowest exposure to oil from an investment point of view,” said Shamma.
This optimism would reflect on the attractiveness of the equity markets and the valuations of companies.
“We believe the markets remain attractive. We think the markets offer us very interesting exposure to different sectors. We are optimistic on the banking sector and some of the real estate names despite a slowdown in real estate transactions and pricing. There is still a lot of value in these investments,” Shamma added.
A major part of the index on the Dubai Financial Market and Abu Dhabi Securities Exchange is dominated by real estate companies and banks.
Shamma said the market is not expensive at current levels. “We are quiet optimistic about the dynamics of the economy, and they are the fundamentals that drive the valuations. Growth and earnings still justify the valuations. “If we take a look at the emerging market landscape, not many economies offer 40 per cent growth profile, and we have very low debt. This is a US dollarpegged economy.”
Franklin Templeton tries to battle the preconceived notion of the UAE markets as an oil play, but Shamma said the market offers investors much more than that. “The UAE economy is very well poised to benefit from the increase in demand through tourism, hospitality. Population growth in Dubai and Abu Dhabi will continue to support real estate prices and construction activity. With lower oil prices, the economy is very well positioned to mitigate the risk for a considerable period of time as they have considerable reserves, and the economy still hasn’t tapped the debt market,” he added. The UAE has about $3 trillion in reserves.
Franklin Templeton was net buyer in November and December last year, when the index shed more than 33 per cent in value.