Credit Suisse Raises UAE Equities To Overweight From Neutral

Analysts at Credit Suisse said on Sunday they had upgraded their assessment of United Arab Emirates equity markets to overweight from neutral because concern about the impact of lower oil prices on the country’s economic growth was excessive.

The UAE’s non-oil economy, which remains strong, is a far more important driver for corporate earnings growth than the oil sector, while 12-month forward earnings estimates for UAE stocks are at a discount of about 35 per cent to the MSCI World index, Credit Suisse said in a report.

From a price-to-book value perspective, which is historically less sensitive to earnings revisions, the UAE is trading at an unusual 20 per cent discount to the MSCI World, the report added.

Credit Suisse said it preferred UAE banks and consumer-related stocks, though it recommended indirect exposure to the latter sector through stocks such as Air Arabia, DP World and Emaar Properties.

The key risks for the UAE stock markets are an escalation of the military conflict in Yemen and renewed weakness in oil prices, Credit Suisse said. But it added that its base-case scenario was for the Yemen conflict to remain regionally contained and not escalate into a wider conflict that drew in Western powers.

“The Gulf region tends to underperform global equities for a brief period in the aftermath of a regional conflict, but this gap closes in subsequent weeks,” the report said.