UAE stocks get double-upgrade on broad recovery hopes

The US multinational investment bank argues that the recovery of UAE bourse is possible as the positive virus vaccine news remains “far from priced.”

Shares listed in Dubai and Abu Dhabi bourses, which are lagging emerging-market peers this year, got a double-upgrade to tactical overweight as their exposure to cyclical sectors including tourism, leisure and financials — a burden during the pandemic so far — stands to benefit from upcoming vaccines, Morgan Stanley strategists including Marina Zavolock and Regiane Yamanari wrote in a note.

The bullish outlook for the UAE stocks came as Dubai’s main share index added about 0.3 per cent on Wednesday, with Dubai Islamic Bank and Dubai Investments leading gains, putting on 0.9 per cent and 1.7 per cent respectively.

While the Abu Dhabi market posted losses on a day when most major Gulf markets logged gains, Saudi shares reversed course to end sharply higher on Wednesday as further positive news on Covid-19 vaccine development cheered investors.

The Abu Dhabi index logged losses for the first time in eight sessions, finishing 0.2 per cent lower. Telecom major Etisalat was the top loser in the blue-chip index, shedding 0.7 per cent, while major lender First Abu Dhabi Bank ended the session 0.3 per cent down.

Saudi Arabia’s benchmark index added 0.6 per cent, with lenders National Commercial Bank and Al Rajhi Bank gaining 2.0 per cent and 0.7 per cent respectively.

Morgan Stanley had similarly double-upgraded UAE shares to overweight in February 2019, citing an early recovery in the property sector and appealing valuations.

“That view was reversed this year as the coronavirus pandemic triggered a slump in oil price, the main source of revenue for economies in the Gulf, and hit the country’s tourism and real estate industries,” the investment bank said.

“The UAE’s cyclical recovery has already begun,” Zavolock and Yamanari wrote, noting stronger third-quarter spending as local residents consumed at home rather than abroad during the hot summer.

The strategists also considered the UAE's handling of the pandemic to be among the strongest in eastern Europe, the Middle East and Africa region, and believe the winter tourism season will be better than expected.

Their decision to rate the country tactical overweight, rather than outright overweight, stems from concerns over a real estate glut and banks’ low capital ratios.

On Monday, Morgan Stanley upgraded Emaar Malls to overweight, expecting the owner of Dubai’s biggest shopping centre to reap the benefits of an accelerating recovery in tourism.

They also expect Europe, the Middle East and Africa region stocks to outperform as earnings estimates for next year have flatlined at lows, “and should recover as consensus incorporate vaccine data.”