Fund managers may withdraw some funds from Dubai

Dubai: Fund managers based in the Middle East are likely to withdraw some funds from Dubai’s stock market for the remainder of the year as it has reached extremely high levels rapidly this year on the back of a strong recovery in the property and banking sectors, a survey suggests.

The managers of the 16 institutions surveyed by Thomson Reuters in the last 10 days said they are more inclined to invest in Saudi Arabia, which has risen a moderate 17 per cent, lagging most of the other Gulf bourses. None of them plans to reduce their allocation to the Gulf’s largest equity market.

The Dubai Financial Market General Index is up a staggering 71 per cent this year and the Abu Dhabi Securities General index is up 46 per cent.

With many of the stocks fully valued and Dubai’s shares trading at 16 times last year’s corporate earnings compared to about 13 times of MSCI’s Emerging Markets Index, the fund managers sounded less bullish on Dubai in the short term. Thirty-eight per cent of the institutions said they expected to decrease their equity allocation to the UAE in the next three months, while 31 per cent intended to increase it and the rest said they would keep their UAE exposure flat.

Despite high valuations, there are still opportunities in the UAE and both countries have to be played carefully, according to a Abu Dhabi-based fund manager.

On valuation grounds Dubai is now trading at a slight premium to Saudi Arabia after having traded at a significant discount over the past few years, said Saleem Khokhar, head of equities at National Bank of Abu Dhabi. “However, my view is that the UAE valuation rerating is justified given the strength of the underlying economy. Saudi Arabia is undoubtedly an attractive market with good upside potential but both UAE and Saudi markets need to be played selectively.”

Raghu Mandagolathur, senior Vice-President research at Kuwait Financial Centre, points out that in Saudi Arabia, a slew of measures from the newly appointed CMA (Capital Markets Authority) Chairman, the credit rating issuance for local companies, adoption of circuit filters for newly listed stocks and re-alignment of weekend in line with other GCC nations have been viewed favourably.

“This has fuelled market speculations that Saudi is inching closer towards opening up its market for foreign ownership,” said Mandagolathur.

Anticipating positive developments on this front, it could be assumed that profits are being booked in UAE markets and new inflow of funds find their way to Saudi Arabia, he added.

However, it should be noted, Mandagolathur said, that inter-GCC investments are comparatively lower relative to home country investments and hence such funds shift from UAE to KSA may hardly impact market performance.

In case of Saudi Arabia, the market diversity offers more opportunities that are missing from the UAE, says a fund manager from Dubai.

“In terms of market structure, the Saudi Arabian market offers more breadth in terms of variety of sectors and stocks,” said Vijay Harpalani, assistant fund manager at Al Mal Capital. “If you look at the UAE, the public equity market predominantly represents banking and real estate sectors while in Saudi Arabia, apart from banking and real estate, you have participation from various other sectors such as consumer goods, hotel and tourism, industrials, agri and food industries, retail and several others.”

But he adds that strong recovery in the UAE, driven by non-oil sectors, will attract more liquidity and momentum to the market.

“Given its highly attractive demographic profile, relatively large fiscal surpluses and an increase in momentum in infrastructure investment, Saudi Arabia will also attract investor interest,” said Harpalani.

Some of the institutions who had stayed away from the Egyptian stock market in the past few months may be returning in coming months as $12 billion (Dh44.076 billion) in financial aid pledged by Egypt’s Gulf allies helps to stabilise its economy, the survey suggested.

“Thirty-eight per cent of institutions said they expected to increase their equity allocation to Egypt over the next three months, while 19 per cent said they would probably reduce it,” the survey said.