KHALEEJ TIMES, Thursday, Aug 8, 2019 | Zul Hijjah 7, 1440
Right time to invest? UAE equities attractive on low valuations, positive indicators
Investors waiting for the right moment to invest in the UAE markets need
not wait any longer, as several key catalysts such as the increase in foreign
ownership limit, government spending, and consolidation in banks have created a
landscape of positive economic indicators that is favourable to investors,
Speaking at a forum on Sunday, Ali Al Adou, head of asset management at Daman
Investments, said that while UAE markets have underperformed, key catalysts such
as increasing liquidity and lower interest rates will help the market rebound.
The macroeconomic slowdown, he said, was due to several reasons, including the
escalation in geopolitical tensions; Saudi Arabia and Kuwait's MSCI and FTSE
inclusions; and a lack of diversification and liquidity.
In addition, real GDP growth has trended downwards due to a slowdown in key
sectors during the 2015-18 period. Government spending as a percentage of the
GDP has decreased during this period.
"We also seen a slowdown in the UAE's tourism sector," he said. "Tourist arrival
growth continues to decelerate in Dubai, driven by a decline in arrivals from
core markets such as India, Saudi Arabia, and the UK. There has also been a
sharp devaluation in currencies of other key source markets such as Russia,
Iran, and Pakistan. This means that the UAE has become an expensive destination
for travellers from these countries."
Shehab Gargash, chairman and founder of Daman Investments, said that the UAE has
always been seen as an economic haven, especially during periods of unrest in
the region. Though there have been a limited number of IPOs over the last four
years, he said that he was looking forward to what the future would bring. "The
IPO channel is always open here."
Al Adou added that the continued strength in oil prices is the first of many
positive indicators. "A strong rebound in prices has increased the government's
ability to spend; Brent crude oil's price has increased by 18 per cent year to
The YTD average price of oil of $66 per barrel is close to the UAE's 2019 fiscal
break even price of $65 per barrel. As a result, the fiscal deficit is projected
to fall to 0.8 per cent of the GDP in 2019 from 1.8 per cent in 2018.
Another positive indicator is the recent announcements in government spending
and other economic initiatives. Abu Dhabi announced a wide ranging Dh50 billion
investment and economic stimulus for the 2019-21 period. Key policies announced
include an agreement with FAB to guarantee up to 75 per cent of bank loans to
SMEs. Also, Adnoc is aiming to raise its production capacity and plans to spend
Dh486 billion between 2019-23; this spending will stimulate private sector
growth and create jobs.
Lastly, the consolidation which has started in the UAE's banking sector, is
already beginning to reflect on the sector's profitability.
Shailash Dash, a financier and entrepreneur, said that the current banking
sector mergers will create more solid banks with greater liquidity which should
drive the credit growth in the market. "The current indications are that we
should see more activity in the basic sectors like real estate and banking in
the coming months," Dash told Khaleej Times on Sunday.
"All the indicators in real estate show an uptrend among the sector both in the
primary and secondary markets even though with a price correction."
Vijay Valecha, chief investment officer, Century Financial, said that the year,
so far, has been great for UAE equity markets with DFM and ADX rallying by
around 15 per cent and eight per cent, respectively, till July 2019.
"The UAE's decision to allow 100 per cent ownership in certain sectors is seen
as a game-changer and is likely to boost FDI inflows in UAE. At a very holistic
level, this law along with others like bankruptcy and commercial companies' law
are bound to further enhance the overall growth scenario of the UAE economy," he
Moreover, he said Central Bank of the UAE recently cut the interest rate by 0.25
per cent in line with the US fed and this should lead to lower financing costs
"This is a big positive for a credit driven economy like UAE. This will be
especially beneficial for UAE real estate as well as capital markets," he said.
"At nearly 6.5 per cent dividend yield, 7.75 times PE ratio and an overall 10
per cent earnings growth expected over the next two years, DFM, the benchmark
Dubai index certainly offers a lot of value and could rally by another 8-10 per
cent this year."
Moreover, in view of the recent bank consolidation which is stabilising the
banking sector, Abu Dhabi market is also likely to remain stable as banks
account for more than 60 per cent of ADX market capitalisation, he said.
Lewis Allsopp, chief executive officer of Allsopp & Allsopp, noted that the
property market has dropped a considerable amount over a four-year period, which
has left developer prices being over the market value when compared to what is
available in the re-sale market. However, new launches can still sell out in one
day, but, only if the development is priced correctly.
"Developers are continuing to build properties and are now offering post payment
plans over five years to attract end-users. Some developers are offering
attractive payment plans which gives buyers the opportunity of paying as little
as five per cent to receive the keys and paying the balance remainder over the
next five years. This is a great initiative to attract the key component in the
market - end users," he said.