International investors have sold Emaar shares this year as part of a wider global trend away from exposure to real estate in the wake of the current US sub-prime crisis, analysts said.
While foreign funds have maintained and even increased their “hot money” flows into local markets, options beyond investing in developer Emaar may be limited, due in part to the foreign ownership limits set for other popular stocks on the Dubai Financial Market such as Aramex and Shuaa Capital.
However, Emaar continues to be the big play on local markets in the long-term according to experts. When HSBC initiated coverage of Emaar, Dubai’s largest listed company, last Monday and the stock shot up more than 11 per cent over two trading days to Dh12.65, market participants felt the tide had turned for the battered giant. But international investors remain net sellers to the tune of Dh1.4 billion since the beginning of the year.
The HSBC report, which stated that Emaar is “one of the most misunderstood and undervalued $20bn” the bank covers globally, gave the company a long-term fair value of Dh23. International investors appear to be hesitant to follow this advice, perhaps due to some confusion when Credit Suisse reduced its fair value to Dh15.33 last Wednesday.
Sherif Abdul Khalek, Al Futtaim HC Securities dealing room manager, said the HSBC analysts may have underestimated how disenchanted international investors have become due to the seemingly continuous negative news about Emaar. The HSBC report stated that with the “share-for-land swap issue becoming a distant memory, we think institutional involvement and improving corporate communication should lead to a strong recovery.”
The authors also said they “believe most of the negative news that we can think of is already in the price… The Indian IPO was postponed and a lower-than-expected dividend payout has already been made.”
But Abdul Khalek believes that “international investors are not happy with the way the company is communicating, and they are really reducing their exposure due to this”, which in some ways is muting the chances of a rebound. “There have been some improvements in the way the company communicates to the market, but investors are looking for more transparency, and that may be the reason why there has been a decline in their weighting,” he added.
Another analyst who covers Emaar and GCC real stocks said there could be another explanation why international investors have exited Emaar this year. Stefan Schurmann, an analyst with EFG-Hermes who rates the stock as ‘accumulate’ with a fair value of Dh18.5, said international investors “have reduced their exposure to real estate stocks globally” and the reduced weighting in Emaar is part of that trend. “Emaar hasn’t been hit as hard” when compared to similar companies, Schurmann added.
As the company with the largest market capitalisation, a stagnant Emaar contributes to a slump in the overall market. Yet last year, as Emaar’s share price fell 4.2 per cent, the Dubai Financial Market index rose more than 40 per cent.
“The market benefited since March 2006 from a major injection of capital from foreign institutional investors,” Abdul Khalek said. “But this also pushed many good stocks towards their foreign ownership limits,” such as Arabtec and Aramex, he added, which may explain why Air Arabia, Tamweel and some Islamic financial stocks have been seen increased foreign ownership.
The problem going forward, according to Abdul Khalek, is finding enough blocks of shares available to foreigners to satiate their appetite. “What we are seeing is a lot of trading volume between international investors. They are picking up anything they can get.”
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