Dubai: Investors just woke up to the allure of last year’s worst-performing stock market, with Bank of America Merrill Lynch and Morgan Stanley saying it’s bargain time.
Dubai’s main index, which tumbled almost 25 per cent last year, had its best day since December 2016. Before Wednesday, the stocks had been trading at the biggest discount to their emerging-market peers since 2011.
“UAE stocks look very, very attractive valuation-wise,” said Hootan Yazhari, the head of Middle East, North Africa and global frontier markets at Bank of America Merrill Lynch in Dubai.
“Especially in the real estate sector, you’ve seen a pullback over concerns on overbuilding and overcapacity. And it’s just fair, because we have seen house prices and rents falling.”
The DFM General Index climbed 2.6 per cent on Wednesday to its highest level since Dec. 5. Real estate and construction shares led the advance, with Emaar Properties PJSC rising 6.2 per cent and Damac Properties PJSC rallying 4.8 per cent. The gains narrowed those stocks’ losses in the past 12 months to 24 per cent and 60 per cent, respectively.
Though Dubai’s residential prices are down about 25 per cent since their 2014 peak, about 31,500 homes will flood the market this year, double the annual demand of the past five years, according to broker Jones Lang LaSalle Inc.
But, after firms such as Emaar Properties and its Emaar Development PJSC unit reported profit that beat the analyst estimates, appetite for the battered stocks is growing.
Analysts boosted the estimated earnings-per-share for members of Dubai’s gauge by 11 per cent in January, the most since 2015, bringing down the stocks’ 12-month estimated valuation to the lowest level in about eight years.
Morgan Stanley gave a double upgrade to United Arab Emirates stocks earlier this week, citing “various contrarian indicators pointing to a potential tactical, if not structural, turning point.”
Emaar Properties’ fourth-quarter results were “meaningfully better-than-expected,” it said.
While stocks such as Emaar Properties, Emaar Development and Damac Properties have all risen at least 10 per cent in the past week, S&P Global Ratings said this week that the worst is yet to come for real estate in Dubai, with property prices falling a further 5 per cent to 10 per cent in 2019 before a gradual stabilisation next year.
Morgan Stanley analysts Marina Zavolock, Regiane Yamanari and Katherine Carpenter pointed to further declines and an oversupply in the UAE property market, along with oil prices, as a “key risk” to their overweight call on the stocks.