The current upturn in the UAE stock market will not last, but there could be short term buying opportunities in the banking sector, EFG-Hermes has said.
The regional investment bank said the current pick up in the market is part of a bear market rally and that it does not expect the momentum to last beyond one or two months.
EFG has moved to a net underweight position on banks, but said that some names are trading at levels that imply an excessively harsh outlook, suggesting room for short-term trading opportunities.
“This is especially so given the AED16bn ($4.4bn) capital injection in Abu Dhabi banks and the government of Dubai bond programme,” a team of analysts wrote in a note to investors.
EFG remained overweight on First Gulf Bank, where it believes the market is overestimating the size of future asset write downs, and National Bank of Abu Dhabi, with its “more resilient” earnings outlook.
However, the bank remained underweight on Dubai Islamic Bank, which is facing a rising number of loans past due that have yet to be impaired, and ongoing issues related to the prosecution of key members of staff.
EFG remained overweight on telecom stocks and strongly underweight on real estate.
“We expect more negative news to emerge on project cancellations, population contraction, and financing issues,” it said.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.