Dubai: The move by etisalat, UAE’s biggest telecom company, to open for foreign investors comes close to the milestone event in Saudi Arabia, which opened its equity markets for foreigners, is meant to increase capital flows in the background of lower crude oil prices, analysts said on Wednesday.
On Wednesday, the telecom operator extended gains to hit an upper circuit for a second day in a row, helping sentiment across the board in Abu Dhabi Securities Exchange.
“We welcome the move and we expect more investors to buy the stock. It follows Saudi Arabia, where capital markets are also being liberalised. The UAE and the GCC as a whole will no longer be a significant capital exporter, given lower oil prices, and these moves help to increase capital inflows,” Jaap Meijer, managing director at Arqaam Capital told Gulf News.
“Etisalat on its own benefits from higher strategic and flexibility as well, while having a 20 per cent cap still ensures it remains firmly in local hands,” Meijer said.
The UAE lifted the restrictions on condition that foreign holdings don’t exceed 20 per cent, and the change will come into force after “additional legal and legislative procedures”. The UAE government still owns 60 per cent of the company, and does not intend to reduce its stake now.
MSCI inclusion
After the move, there is a possibility of the stock getting included in the MSCI emerging market index.
“We expect a 14 basis points of weight in the MSCI Emerging Market index, and that may result in passive flows of over $350 million,” Meijer said.
UAE and Qatar indices were included in the MSCI emerging market index in May 2014, and Emaar Malls Group was the last inclusion in the index, that happened in May 2015.
However, analysts point out that after a 21 per cent increase in the stock they don’t see much upmove in the stock, though they would be buyers at dips.
“After the re-rating, in the last few days we do not see much fundamental upside, as the Price to Earnings ratio ramped up to 14x, 20 per cent ahead of its relevant peer group,” Meijer added.
“The price was trading at a big discount as foreigners were not allowed to buy the stock. Local investors realised it was a great opportunity to buy the stock now before foreigners come and buy the name. We are not far away from the fair value of the scrip. We should expect stock price to outperform the market in the market coming weeks,” Sebastien Henin, head of asset management at The National Investor said.
