The property and construction sector continues to have a strong overweight, but with a more polarised stance, in a model portfolio for the UAE’s two stock exchanges developed by Cairo-based investment bank EFG-Hermes.
“We raise our overweights in Arabtec and Union Properties and counter this with a reduction in our position in Emaar. Arabtec remains in a sweet spot within the construction industry as a lack of qualified contractors allow the company to pass on costs, cherry pick within profitable projects, and thereby enjoy increasing margins,” EFG’s analysts said.
The energy and utilities sector continues to be underweight in EFG’s model portfolio “in light of low transparency and high valuations”, it added.
The investment bank is not too bullish on the UAE banking sector because valuations are high and a general slowdown in earnings growth is expected this year.
EFG-Hermes’ research also revealed that the contraction experienced by the DFM and ADSM in the first quarter of this year has brought stock valuations to more moderate levels.
From last year’s level of 16 to 18 times earnings, stock prices are at 13.4 times estimated 2008 earnings and 10x estimated 2009 earnings for the UAE as a whole. This comprises Dubai price-to-earnings (P/E) ratio at 12.3x 2008 and 7.9x 2009 earnings and Abu Dhabi at 14.6x 2008 and 13.2x 2009, the investment bank said.
“In our view, the poor Q1-2008 was driven largely by negative investor sentiment surrounding the current turmoil in global markets.”
Realty stocks in a 'sweet spot'