Saudi Arabia's main equities gauge, the Tadawul All Share Index, has advanced 15% so far this year while Dubai's DFM has fallen by the same amount
The valuation gap between stocks in Saudi Arabia and Dubai has expanded to the widest since 2011.
Saudi shares have traded at a premium compared to those in Dubai most part of the time in the past seven years, but the gap has widened in 2018 as bets that the kingdom would be included in emerging-market benchmarks by MSCI and FTSE Russell fueled a rally, pushing valuations higher.
In Dubai, which is already part of those indexes, concerns tied to the emirate’s real estate market have been weighing on stocks.
The average estimated price-to-earnings ratio for Saudi shares climbed to 14.8 this week, compared with 7.4 for stocks composing Dubai’s main stock benchmark. The difference between them is the biggest since January 2011, data compiled by Bloomberg shows.
Saudi Arabia “is looking forward for the most significant liquidity event in its history while the UAE awaits a catalyst,” said Aarthi Chandrasekaran, vice president at Shuaa Capital in Dubai.
“In the next 12 months, we expect the valuation spread to continue to widen,” she said, adding that Saudi Arabia should lure between $35 billion and $40 billion in inflows from passive and active fund managers.
Saudi Arabia’s main equities gauge, the Tadawul All Share Index, has advanced 15 percent so far this year. Meanwhile, Dubai’s DFM General Index fell 15 percent, in its worst year-to-date performance since 2006.
“As far as the UAE is concerned, we do see a lot of valuation mispricing both in real estate and banking names. But weak sentiment, the lack of depth and better green shoots elsewhere could continue to drag the markets down,” Chandrasekaran said.