Dubai: UAE stocks are highly exposed to a broad recovery, with positive virus vaccine news "far from priced", according to Morgan Stanley.
Dubai and Abu Dhabi-listed shares, which are lagging emerging market peers this year, got a double-upgrade to tactical overweight as their exposure to cyclical sectors including tourism, leisure and financials - a burden during the pandemic so far - stands to benefit from upcoming vaccines, strategists wrote in a note.
Morgan Stanley had previously double-upgraded UAE shares to overweight in February 2019, citing an early recovery in the property sector and appealing valuations. That view was reversed this year as the coronavirus triggered a slump in oil price, the main source of revenue for economies in the Gulf, and hit the country's tourism and real estate industries.
A recovery is on the way
"The UAE's cyclical recovery has already begun," the analysts wrote, noting stronger third-quarter spending as local residents consumed at home rather than abroad during the hot summer. They also consider the country's handling of the pandemic to be among the strongest in the eastern Europe, the Middle East and Africa (EEMEA) region, and believe the winter tourism season will be better than expected.
Their decision to rate the country tactical overweight, rather than outright overweight, stems from concerns over a real estate glut and banks' low capital ratios. On Monday, Morgan Stanley upgraded Emaar Malls to overweight, expecting the owner of Dubai's biggest shopping center to reap the benefits of an accelerating recovery in tourism.