EFG warns UAE stock rally could lose steam

Dubai: A rally in the UAE stock markets may be running out of steam with foreign institutional buying tailing off and individual investors piling into shares in Dubai and Abu Dhabi, Cairo-based investment bank EFG-Hermes said.

"We would advise caution in chasing the current rally and note that liquidity from both retail and "fast money" investors can exit the market as quickly as they entered it," the said in a note late on Tuesday.

"At present we see little near-term fundamental upside to markets, but we remain positive on a medium term basis," EFG said, estimating that the UAE markets were trading at their fair value of 14.6 times earnings for 2007 and 12.8 for 2008.

Benchmarks in Dubai and Abu Dhabi have gained 22 per cent and 18 per cent respectively this month, driven by third-quarter earnings and foreign buying.

"Foreign investors, particularly Western institutions, have displayed increased demand for emerging market exposure," EFG said. "This has resulted in increased correlation with emerging markets, particularly for the UAE where Western institutional penetration has been the greatest," it said.