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Biggest UAE bank slumps as MSCI verdict deals blow to stock

[DUBAI] The biggest bank in the United Arab Emirates (UAE) slumped after index compiler MSCI failed to increase its representation in emerging-market benchmarks, surprising investors who had expected a larger weighting.

MSCI kept unchanged a foreign inclusion factor, a metric used in the calculation of its main benchmarks, for First Abu Dhabi Bank PJSC even after the lender known as FAB raised the cap on international investor share ownership earlier this year.

Some analysts and traders had predicted that the stock would eventually attract inflows because of a higher weighting from MSCI.

Mohamad Al Hajj, an equities strategist at EFG-Hermes in Dubai, said MSCI's decision was "the biggest surprise, and certainly unjustified." FAB's shares declined as much as 10 per cent, the biggest drop since the merger that created the lender in 2017.

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Analysts from Arqaam Capital including Michael Malkoun and Jaap Meijer wrote in a report that "MSCI has chosen to remain conservative as there has been no information on the sale of stakes held by the ruling family", adding that the "highly anticipated US$560 million of passive inflows will not come through".

The drop pushed Abu Dhabi's main index to the lowest level since July, extending a decline into oversold territory for a second session. That's a contrast with the end of April, when FAB's performance drove the index to overbought levels. The stock accounts for 44 per cent of the benchmark.