UAE shares predicted to rebound soon

DUBAI MARKET: Shares on UAE exchanges are undervalued and will rebound soon, according to ING's research head. (Getty Images)

UAE stocks are undervalued and will rebound as early as in the fourth quarter of this year, the head of research at ING Investment Management Middle East has said.

“UAE I think is one of the weakest markets in the region compared to the growth expected,” Fadi Al Said told Arabian Business.

“I think it still offers really good value if you compare it to Saudi Arabia, Qatar and other markets.”

He acknowledged that his views may be controversial to some, as a spate of corruption scandals has brought shares in the country’s real estate companies to record lows.

“Emaar is definitely only trading at a fraction of its value. It’s discounting all of its international operations and trading at a worst case scenario of a real estate market correction in Dubai,” he said.

But Dubai is “brave” to be the first Gulf state to address corruption and other Gulf states will have to follow suit, although it may take time in some markets.

The Dubai Financial Market’s (DFM) main index is down 20.0 percent in the year to date, while the Abu Dhabi Securities Exchange General Index has shed 4.6 percent.

The DFM’s Real Estate and Construction index is down 31.3 percent in 2008 and the real estate measure in Abu Dhabi has lost 22.2 percent.

International investors have been pulling out of the region as a result of lower oil prices and geopolitical tension, and to cover losses in other parts of the world.

Other emerging markets, such as China and India, are also attracting buyers after recent declines.

Al Said believes some international investors view the region as a pure oil play and are not factoring in the amount of infrastructure and construction projects that will go ahead regardless of what happens to the oil price.

If house prices remain stable and real estate companies continue to post stellar results, investor sentiment will improve in the next quarter, he said.

In the short term, he also sees strong growth in the Saudi market following the decision to allow foreign investors to purchase listed shares indirectly.

Around 49 percent of the widely followed MSCI Arabian Markets benchmark index consists of Saudi Arabian companies.

“Any investor who wants to have passive exposure to this region will have to invest 49% of his assets in Saudi companies,” he said.

In terms of sectors, Al Said is bullish on retail and consumer related services.

“In other sectors I would be very selective,” he said.

“I would look at banks with diversified assets and diversified loans and very strong risk management practices.”

He sees IPO activity resuming as soon as investor sentiment improves, with family owned firms taking centre stage following a change in UAE regulations that allows them to maintain control of as much as 70 percent of the company.

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