Dubai: The increase in foreign ownership limits by Emirates NBD to 40 per cent that was announced earlier this week could bring over $800 million (Dh2.93 billion) in foreign fund flows to the stock, analysts said.
An increase in foreign ownership limit is expected to result in ENBD’s inclusion on the emerging market indices by MSCI and FTSE Russell, which would drive fund flows from at least passive investors tracking the benchmarks.
The first round of increase in limits, which became effective on September 2, brought foreign ownership limit to 20 per cent from 5 per cent. Emirates NBD said it plans to obtain approvals to raise that further to 40 per cent in the future, but did not specify a timeline.
So far, according to data on the Dubai bourse’s website, foreigners own just 5.74 per cent of shares of Emirates NBD, up from 5 per cent on Sunday. The figure is expected to gradually rise to 20 per cent as more investors buy the stock, and with that, take share prices higher.
Even with just 20 per cent as the foreign ownership limit, the stock could see around $425 million to $450 million in foreign funds flow, analysts said.
When First Abu Dhabi Bank in April this year said it has received regulatory nods to hike foreign ownership limits to 40 per cent from 25 per cent, its share prices surged to their highest level in 52 weeks. The bank saw additional gains in July when it proposed raising removing the limit altogether as the UAE government announced 100 per cent foreign ownership in certain industries.
“Generally, the stock price response [to raising foreign ownership limits] is positive,” said Vrajesh Bhandari, senior portfolio manager at Al Mal Capital.
“Actual foreign ownership may not necessarily grow fast — that would depend on the level of undervaluation and average liquidity. Local investors acquire shares in anticipation of passive flows resulting from higher weight in MSCI and FTSE indices,” he said.
Jaap Meijer, head of research at Arqaam Capital, pointed in a note that the announcement from Emirates NBD also resulted in increased interest in other UAE stocks that are expected to raise their foreign ownership limits.
“Dubai Islamic Bank is the key candidate, in our view, for a further [foreign ownership limit] increase to 40 per cent from the current 25 per cent,” he said. “That should be quickly reflected in the international indices, with around $125 million of passive inflows form MSCI and nearly $55 million from FTSE.”