UAE bank shares offer better value than their Kuwaiti and Saudi peers that have received foreign interest after their upgrade to emerging market status, according to Egyptian investment bank EFG Hermes.
“Macro worries – pressure on the real estate, impact on consumer demand due to VAT, weak employment growth and soft RevPar [revenue per available room] for hotels – have weighed on UAE banks [shares],” EFG Hermes analysts Shabbir Malik and Rajae Aadel said in a report released on Wednesday.
"While these trends are expected to continue in the short-term, we note that non-performing loans formation has so far been manageable and the cost of risk is stable.”
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Shares of banks in the UAE, the region’s second biggest economy, have broadly lagged the rise of their peers in Saudi Arabia and Kuwait this year after index provider FTSE Russel elevated the two markets to emerging markets status. Rival global index compiler MSCI in June decided to include Saudi equities in its emerging markets index, which is tracked by asset managers with the trillions of dollars under management.
These upgrades are expected to bring tens of billions of dollars to the Saudi and Kuwaiti equities markets, according to analysts’ estimates.
EFG Hermes, however, said that it is encouraging to see the UAE government taking steps to address the macro challenges, including a Dh50 billion economic stimulus package in in Abu Dhabi, the reduction of fees for businesses and the potential relaxation in foreign ownership limits, which should drive credit demand.
“We believe that UAE banks’ multiples are attractive … and investors are being compensated well for better times in 2019,” the EFG Hermes analysts said.