Dubai: In the medium term, Dubai Financial Market (DFM) general index look poised for a rebound on the back of strong economic fundamentals, according to Charles-Henry Monchau, managing director, chief investment officer and head of Investments at Al Mal Capital.
The index has been one of the worst-performing regional equities over the last four years, losing about 50 per cent of its value since late 2014. Monchau spoke to Gulf News in an interview that touched on local equities, including his top five picks in the region.
“[The] stock market is anticipating a turnaround, and we would see stocks moving ahead of the recovery. There is a price for everything and now we are getting to levels where valuations are very attractive,” Monchau said. “As global emerging market managers allocate capital among countries, they [begin] to find value [once more] in Dubai and the UAE. We like the UAE markets and we feel that Dubai has more upside potential than Abu Dhabi.”
The Abu Dhabi Securities Exchange (ADX) general index has been a star performer due to a rally in banking shares, gaining 16 per cent over the past year.
The most important trigger would be the upcoming Expo 2020 Dubai, which is expected to add Dh123 billion to the UAE economy in the decade after the expo wraps up.
Monchau expects the MSCI Emerging Market upgrade to result in an inflow of $60 billion (Dh220,38 billion) and that may have a spillover impact on other stocks in the region.
“The foreign ownership is just 3-4 per cent, so the only way it can go is upwards. We have the dollar peg, financial stability, and that’s better than emerging markets,” Monchau said.
For now, the flows have been concentrating on large-cap stocks, but “there are some attractive opportunities in the mid-cap space. You may start to find mid-cap space which is not a flow story. The message here is that UAE and Saudi Arabia are not short of interesting oportunities and valuations which is decent compared to large cap space.”
“The initial trigger would be to attract $60 billion and then there would be a spillover impact as traders find certain stocks expensive and they move away to cheaper names,” he added.
Saudi Arabia’s Tadawul index has gained 8 per cent over the last year. So far, the FTSE Emerging Market has upgraded Saudi equities to an emerging market index and flows have come in two tranches out of a total of five. The MSCI will include the gauge in its emerging market index with a weight of 2.6 per cent from June.