Can UAE’s value stocks hold their own against meme-frenzy investing?

By now it’s bit of a tired theme.

Value investors of yore return from their pearly gates and observe the markets that they helped create. What they see are meme stocks; the ‘Mag 7’; crypto mania; AI frenzy and a go-go theme dominated by young newly crafted millionaires.

Higher tariffs, which have led to higher inflation and lower job creation in the US, have been shrugged off by investors.

A ‘buy the dip’ algorithm has meant that not only have the worst stocks outperformed beaten down profitable companies, but even when there has been a solid performance by the value sector, they have been dismissed as a rare phenomenon in an otherwise ‘flash’ dominated market.

Perhaps, 100 years ago, value meant something else. The only question to ask is whether these value investment pioneers would have been truly surprised?

Because they did see mania-fueled rallies before - these constant ‘defeats’ that rutted their path. And in sticking to their path, they did change the map of the investment world, only to see it being redrawn again and again, back to the gimmicky ways of tech-obsessed mania. 

Chasing the ‘next big thing’

Why would anyone bother with emerging markets that are mostly boring and light years behind when one could look to the future and grab at the prospect of the next ‘new new thing’?

After all, who would want to boast of the moat that they had built around the likes of Salik, Parkin, Amlak, Union Properties and the like when the story was so much better talking about the latest ‘meme-coin’, or the outsized returns of Nvidia and the revolution of AI that is set to usher in a new era?

By any accounting measure, valuations are higher than they were at the peak of 2000 and 2007. But why would that be a worry when the fundamental measures that gauge value are outdated to begin with?

We have had this discourse before, and every time we have had the falling to earth, the survivors have come back to roar anew, which is why a combination of index investing and select stock picking has become the order of the day.

What we can say is that this is another extraordinary time when there is so much money floating around, despite the litany of bad news. And why stocks, bonds, real estate and other assets have all risen.

The only fear that seems to be acting out is that of missing out. Even real estate in the UAE has more buzz than the new IPO or any portfolio of domestic stocks that talk about record earnings, with very little follow through by way of stock price action.

Yet we know that these periods do not last. The swing to emerging markets and the UAE and the Middle East in particular is more likely a structural move. As the pace of activity grows in this part of the world, there is likely to be greater investor participation.

DFM’s on a tear

The raft of IPOs (|which caught the attention of the media) is only part of the value re-rating that is underway. Whilst the DFM has already had a record 18 months, the valuations seem to pale in comparison to their counterparts in the West, especially when we factor in inflation that is akin to a train that is coming down at full speed, indicating an ‘imminent smash’. (How long has those words been thrown around?)

When that happens, no one knows. Until then, value investors (defined by their audacity more than anything else) will have to do with going against the crowd. For that is a given in this space, and continue to scoop up bargains along the likes of Lulu, ADNOC, Dubai Taxi and stand validated by the likes of Salik and Parkin, which have clearly been the winners of this ‘value vibe’, whilst the crowd follows the go-go stocks - until they don’t.