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Some investors turning their sights to Dubai
SAUDI Arabian stocks are about to join major emerging-markets benchmarks, gaining the attention of many money managers for the first time. But some investors familiar with markets in the Gulf say that Dubai offers bigger potential gains.
That's because the biggest stocks in Riyadh have been rallying in anticipation of their inclusion in the gauges, compiled by FTSE Russell and MSCI Inc, in several tranches starting this month. Dubai's market, on the other hand, has been battered in the past year by concerns mostly tied to its real estate market, a pillar of its economy.
Saudi shares have historically traded at a premium to Dubai's, in terms of estimated price-to-earnings. But the gap between them was at its widest since 2010 in February. The Dubai Financial Market General Index was the worst performer globally last year among major gauges tracked by Bloomberg, while the Saudi peer was among the 10 best.
"We think the UAE has reached the bottom of its real estate cycle," said James Johnstone, the London-based co-head of emerging and frontier markets at RWC Partners LLC, which oversees US$15 billion. "We have been using that opportunity to reduce some of our Saudi holdings and reallocate it back into the UAE property stocks that are very cheap and attractively priced." He holds Emaar Development PJSC, which has "strong, double-digit cash flow yield".
He added: "Dubai is in a very interesting part of the world in terms of being a hub for companies' continuing their expansion into the Middle Eastern and African markets" and felt that "the story of Dubai both as a hub for businesses and a tourist destination looks to be very strong." He expects property stocks to generate around 14 per cent dividend yields this year.
Morgan Stanley analysts Marina Zavolock, Regiane Yamanari and Katherine Carpenter recommended a double-upgrade on UAE equities to overweight in a report in February, citing "signs of potential fundamental improvement in the property sector and continued strength in financials". BLOOMBERG