Stock markets in the UAE rallied yesterday as investors snapped up shares ahead of the country's upgrade to the MSCI Emerging Market index on Sunday.
The Dubai Financial Market jumped 5 per cent, while the Abu Dhabi Securities Exchange added 5.5 per cent.
The nine stocks chosen to be included in the index – Abu Dhabi Commercial Bank, Aldar Properties, Arabtec, DP World, Dubai Financial Market, Dubai Islamic Bank, Emaar Properties, FGB and National Bank of Abu Dhabi – led the eleventh hour bout of frenzied buying.
“It looks like last-minute positioning by managers ahead of the reclassification,” said Edward Evans, a London-based portfolio manager at Schroders, which manages more than $28 billion in emerging market equities. “Volatile flows can probably be expected in these markets over the coming few weeks.”
The DFM General Index’s gain brought its year-to-date advance to 51 per cent, helping it maintain its wide lead as the best performing index among 90 global indexes tracked by Bloomberg. The ADX General Index’s advance takes its gain since the beginning of the year to 22 per cent, making it the fourth best performer. Qatar’s index, which also joins the MSCI emerging market index next week, has added 32 per cent this year, handing it the No 2 spot.
The advances yesterday in the UAE were led by NBAD, the UAE’s biggest publicly traded lender, and ADCB – both leapt 15 per cent, the maximum a share can rise in one day, to Dh17.25 and Dh9.38 respectively. In Dubai, Emaar, the country’s biggest listed traded property developer, rose Dh7.2 per cent to Dh10.45 while DFM, the emirate’s bourse, advanced 15 per cent to Dh4.25.
Since the announcement last June that the UAE would join the emerging markets index, which has more than 800 listed companies in 21 markets across the developing world, UAE stocks have rallied in anticipation.
Dubai’s index alone more than doubled last year, propelled not just by the index upgrade but also by improving economic indicators. The UAE’s economic growth exceeded 4 per cent in 2013 amid government spending on infrastructure and a rebound in trade and tourism. Shrinking interest rates have also helped businesses to expand and individuals to seek leverage for property and big ticket items.
The rich valuations may make some fund managers cautious about being overexposed to UAE assets. Still, about $1bn will flow into UAE stock markets from foreign index trackers alone as a result of the upgrade to emerging market, according to HSBC.
By contrast to UAE stocks, emerging markets as a whole have not fared as well over the past year-and -a-half. The MSCI index, which bundles stocks from developing nations including Brazil, Egypt, Turkey, India, Russia, China and Indonesia, has gained just 3.5 per cent so far this year.
Last year it dropped 5 per cent amid political and economic turmoil in many of its countries, leaving many bargains in its wake. That may make active fund managers – those who do not have to follow benchmarks – more eager to look for cheaper stocks than those in the UAE.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Coffee: black death or elixir of life?
It is among the greatest health debates of our time; splashed across newspapers with contradicting headlines - is coffee good for you or not?
Depending on what you read, it is either a cancer-causing, sleep-depriving, stomach ulcer-inducing black death or the secret to long life, cutting the chance of stroke, diabetes and cancer.
The latest research - a study of 8,412 people across the UK who each underwent an MRI heart scan - is intended to put to bed (caffeine allowing) conflicting reports of the pros and cons of consumption.
The study, funded by the British Heart Foundation, contradicted previous findings that it stiffens arteries, putting pressure on the heart and increasing the likelihood of a heart attack or stroke, leading to warnings to cut down.
Numerous studies have recognised the benefits of coffee in cutting oral and esophageal cancer, the risk of a stroke and cirrhosis of the liver.
The benefits are often linked to biologically active compounds including caffeine, flavonoids, lignans, and other polyphenols, which benefit the body. These and othetr coffee compounds regulate genes involved in DNA repair, have anti-inflammatory properties and are associated with lower risk of insulin resistance, which is linked to type-2 diabetes.
But as doctors warn, too much of anything is inadvisable. The British Heart Foundation found the heaviest coffee drinkers in the study were most likely to be men who smoked and drank alcohol regularly.
Excessive amounts of coffee also unsettle the stomach causing or contributing to stomach ulcers. It also stains the teeth over time, hampers absorption of minerals and vitamins like zinc and iron.
It also raises blood pressure, which is largely problematic for people with existing conditions.
So the heaviest drinkers of the black stuff - some in the study had up to 25 cups per day - may want to rein it in.
Rory Reynolds
