Dubai stocks are at the cheapest level in the world relative to company assets
Dubai’s shares are “attractive” as political turmoil spreading across the Middle East pushed stocks lower, creating an opportunity for investors to buy UAE’s banks, according to Morgan Stanley.
“Valuations are attractive but we need to be mindful of higher volatility,” Fahmi Alghussein, Dubai-based executive director at Morgan Stanley, said in an e-mailed response to questions on Wednesday. Investors are paying too little for what companies are worth and “once the dust settles they will look at the fundamentals of each of the companies and the operational environment,” he said.
Dubai stocks are at the cheapest level in the world relative to company assets. The DFM General Index’s 11 percent drop this year left it valued at 0.6 times net assets, or book value, a 65 percent discount to the global average and the least since Bloomberg began compiling the data four years ago. Emirates NBD, the biggest bank in the UAE, traded at AED3.20 ($0.87) even though the lender said last month its book value was about 6.06 dirhams a share on December 31.
Political turmoil from Libya to Oman and concern that unrest may erupt in Saudi Arabia has deterred investors. The Bloomberg GCC 200 Index of Gulf shares has declined 8.4 percent since the ouster of former Tunisian President Zine El Abidine Ben Ali on January 14.
The decline in Dubai’s shares is justified because of the high “increase in risk in the region,” said Alghussein. “The recent sell-off in the Middle East and North Africa is a function of de-risking by investors. We saw that in other parts of the world such as Russia, Indonesia and Thailand.”
Investors have added about $24bn to US equity funds this year, while pulling more than $16bn from emerging markets, according to data and estimates compiled by the Investment Company Institute and EPFR Global. The MSCI Emerging Markets Index has declined 2.3 percent in 2011, while the GCC 200 gauge measuring the top 200 shares in the Persian Gulf is down 6.6 percent.
“The risk premium of the region has gone up and will continue to be a concern so long as the outlook remains murky,” Alghussein said.
Alghussein said he also favors DP World, the world’s fourth-biggest port operator, and has “a positive outlook” on the stock. DP World rose 0.2 percent to $0.57 today, trimming the drop for the year to 9.5 percent.
Dubai’s measure advanced 0.5 percent, bringing the week’s gain to 7.2 percent. Abu Dhabi’s ADX General Index climbed 0.4 percent.