Saturday, Jun 20, 2015
Dubai:
Experts say UAE investors are likely to get more returns by investing in the local markets, than in the Saudi markets, which opened for foreign investors last week.
UAE markets may outperform Saudi markets in the short-term as the local markets play a catch-up in the dividend season in the last quarter.
The Dubai Financial Market General index has shed more than 7 per cent so far in the year compared to 14 per cent gains on the best performing Saudi’s Tadawul index regionally mainly supported by the news of opening up of its markets to foreigners.
“The UAE market has lagged in terms of performance compared to other bigger markets like Saudi. As we head into the end of the year, the UAE markets should do well because dividend yields in most of the stocks would be quiet good, so we would see liquidity buying into those dividend yield stories. Valuations in the UAE on a relative basis look very attractive,” Sachin Mohindra, portfolio manager, at InvestAD in Abu Dhabi told Gulf News, adding Saudi stocks are at a premium, while UAE stocks are trading at a slight discount.
Mohammad Shabbir, head of equity funds & portfolios at Rasmala Investment Bank also agreed with InvestAD’s Mohindra.
“The fourth quarter would be positive as we have dividend declaration towards the end of the year, along with expectation of annual results,” Shabbir said.
In the UAE, however, the returns this year would be lesser than last year, but it has to be seen if it would be a lot less than last year or slightly lower than last year, Shabbir said.
Attractive valuations
Fund managers said some of the real estate companies and banks in the UAE are very attractive at current valuations on expectations of good growth in coming quarters.
“We don’t see a possibility of a rally across the board, but it will be selective. Generally we are positive on consumer related sectors and especially on banks,” Shabbir said.
Earnings were better than expected in the first quarter, a trend that is expected to continue through out the year, according to analysts.
“Extra gains would come only if earnings come in better than expected,” Shabbir said.
InvestAD’s Sachin said: “some of the real estate companies in Dubai and banks in Abu Dhabi are quoting at attractive valuations with strong dividend yields along with strong growth prospects.”
“Even in 2016, at current market price, valuations looking at 2016 earnings are still interesting, but if market rallies from here, then we need to revisit our investment case,” Mohindra said.
Selective buying in Saudi
“Saudi Arabia might see inflows from the QFI’s at the end of the year, as the operational processes are improved. But it is not a cheap market to get into. We would be buying Saudi markets very selectively. We would buy into banks, but in other names if you see specific instances of growth, only then we would be buyers,” Shabbir said.
Last week, Saudi markets opened its doors for international investors, who otherwise had access to markets through swaps and exchange traded Funds, a move that could bring in fund flows in the medium to long term.
But analysts are not convinced with the current valuations in Saudi, and call them expensive.
The Saudi stock market is highly diversified, with 169 listed companies across 15 different sectors. Currently it has a total market capitalisation in excess of $560 billion (Dh2.05 trillion), with average daily liquidity of more than $2.3 billion; making it the seventh largest and the fourth most liquid market among the emerging markets.
For the UAE and Saudi markets, 2016 might even prove better compared to 2015.
“The macro environment which was stable for most of last year has changed, so if oil stays like this we might see some stability at the end of the year. Next year might be better compared to 2015, as there would be more clarity on budget spending for next year,” Shabbir said.
Long term bullishness
The main drivers for the long term bullishness for the regional markets is the young and growing population, and the demand that arises from the population growth, said Gadir Abu Leil-Cooper, head of EMEA equities, Baring Asset Management. Baring had $2 billion in its EMEA strategies as at May 31.
To add to the bullishness, Gulf region is trying to diversify and trying to mitigate their complete dependence on oil.
“For example Dubai, and even Abu Dhabi for that matter but at a slower pace. So opening of markets like UAE, Qatar and now Saudi is an example of that. Those countries are trying to allow the companies to have access to capital in a very open way, and take away the burden of the government to the private sector,” Leil-Cooper said.
By Siddesh Suresh ?Mayenkar Staff Reporter
Gulf News 2015. All rights reserved.
