Stocks Set to Win in U.A.E. Ownership Shake-Up: Street Wrap

Stocks in the U.A.E., especially real-estate industry shares, may get a boost from plans to allow full foreign ownership in companies as the government seeks to attract investment.

Allowing non-Emiratis to own 100 percent of businesses and granting long-term visas to some investors could support property companies such as Emaar Properties PJSC, analysts, strategists and investors said. The decision may trigger a return by investors to Dubai equities, whose index entered a bear market earlier this month amid faltering prospects for the real-estate industry, one of the main pillars of its economy.

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The DFM General Index closed 1 percent higher on Monday, trimming its loss this year to 13 percent. Emaar Properties, Damac Properties Dubai PJSC and Dubai Investments PJSC contributed the most to the index’s advance. In Abu Dhabi, the ADX General Index rose 0.7 percent, interrupting its longest losing streak since February and extending its gain in 2018 to 1.4 percent.

The Dubai benchmark is trading near the cheapest level to the MSCI Emerging Markets Index since 2011 when comparing estimated price-to-earnings ratios for the coming year.
Click here to read more on the plans.

Here are the views of analysts, strategists and investors on the changes:

Mena Corp., Tariq Qaqish

  • “If we look at the U.A.E.’s GDP, real estate and construction is a big component, which is highly correlated to population growth. With plans to move toward Artificial Intelligence and Robots, the country will need businesses and jobs that will fill the expanding supply of commercial and residential buildings.”
  • “The proactive approach of the U.A.E. government to ensure the sustainability of long-term economic growth is vital, particularly with the expected dilution of the importance of crude oil globally”

Emirates NBD, Khatija Haque

  • Lifting foreign ownership limits “is something that people have been lobbying for several years”; says it is “very hard” to say how businesses will respond until details are provided.
  • Government has been receptive to the private sector, “just a few weeks after asking CEOs and business leaders to present ideas on how to stimulate growth in the economy.”
  • “They are trying to address red tape and make the U.A.E. an easier place to do business, but it remains to be seen if what has been proposed is sufficient to achieve the desired outcome.”

Daman Investments, Ali El Adou

  • Decision is positive for the real-estate and banking sectors across the country, as it should boost foreign direct investment.
  • Stocks from both sectors underperformed regional and emerging markets indexes “and this has been reflected in valuations. The U.A.E. is trading at a deep discount versus EM and is becoming very attractive for deep-value investors.”
  • Once law is implemented, “it is up to the shareholders of listed companies to change their ownership structure to reflect the new foreign ownership laws.”

EFG-Hermes, Mohamad Al Hajj

  • While more details are needed, “the news could provide the catalyst needed to lift the U.A.E.’s real estate market and improve sentiment towards U.A.E. equities”
  • Could help raise U.A.E. valuations, particularly in Dubai, back to historical averages at least, especially given that the market, with the exception of First Abu Dhabi Bank PJCS and Emirates NBD PJSC among the “blue chips,” hasn’t performed well over the past year

Abu Dhabi Commercial bank, Monica Malik

  • Sees developments as positive, with “clear shift in policy to supporting economic activity, boosting investment and putting in place a framework for future development”
  • Impact could reach “multiple areas of support for the economy,” raising investment. levels, population inflows, development of new sectors “especially on the technology front,” and reducing remittances out of the country.
  • Malik looks forward to details including “list of sectors eligible for the 10-year visa, the type of companies that will be granted 100 percent ownership.”

Mitsubishi UFJ Financial Group, Ehsan Khoman

  • “This eagerly awaited amendment to foreign ownership laws will not only change the investment landscape of the U.A.E., but also create significant growth prospects by attracting more FDI flows, primarily into the non-oil sectors of the economy.”
  • “This will further add to the U.A.E.’s robust business operating environment, first-rate infrastructure and well-diversified economy, which will continue to position the country as one of the most preferred investment locations in the world.”

Shuaa Capital, Aarthi Chandrasekaran

  • “We need to wait and see how the investors’ visa will unfold in terms of eligibility,” but it appears to be a timely and welcome decision. May provide “catalyst that could uplift sentiment in the near term.”
  • While 100 percent foreign ownership limit is a possibility, it’s “too early to jump the gun,” given potential for exclusions. “More importantly, U.A.E. has many listed securities that are completely closed to foreigners and more than half of the market is still below 49 percent foreign ownership limit.”
  • “So there is more to do, before we can talk or think along the lines of 100 percent FOL for listed equities, in our view.”

Arqaam Capital, Jaap Meijer

  • Allowing 100 percent ownership by foreigners “will help spur FDIs outside the existing free zones. With zero income tax and corporate tax and a pro-business visionary government, the U.A.E. remains a very attractive option for international businesses.”
  • Five-year visas for students “could spur the further develop the academic curriculum of the country, particularly the higher education”
  • “The decision should also help net immigration, which should significantly alleviate the current pressure on housing markets;” longer-term visas could provide “more certainty for some of its expatriate residents”

Source: Bloomberg, 2018

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