IPOs of 10 state entities in the offing?

The UAE’s economic growth will accelerate in 2022 with many favourable macro indicators at play, including the possible listing of 10 state- controlled entities, according to Maurice Gravier, chief investment officer, Emirates NBD Group.

The relaxation of travel restrictions in key tourism markets including Europe, India, and Saudi Arabia is supporting a strong recovery in the travel and hospitality sectors in the UAE, while Expo 2020 is boosting numbers as well, Gravier said as he presented the bank’s Global Investment Outlook 2022.

“The UAE Purchasing Managers’ Index (PMI) is well in expansion territory. Brent crude is expected to average USD 68/b in 2022 as per our in-house estimates and the recent decision by OPEC to increase production, implies government higher revenues. The positive macro environment, favourable oil price environment, the IPO pipeline plus earning upgrades should continue to boost UAE market performance,” Gravier said at a media briefing on the Investment Outlook themed, “Low Visibility Ahead.”

Gravier and his team presented their investment strategy for a year of many uncertainties: a transition to more normal fundamental returns, but not without turbulence.

Commenting on the IPO market in 2022, he said Dubai authorities are now focused on improving market breadth and liquidity with a market maker fund and a Dh1 billion fund to encourage technology companies to list on the local bourse.

“There are plans to list 10 state controlled entities “including Dewa, Salik, Tecom, Empower, Dubai Duty Free, Jumeirah Group and potentially Emirates airlines,” Gravier wrote in his GIO 2022.

“Family-owned businesses are being encouraged and the Al Habtoor/ Al Futtaim group could consider listing some of their assets. Combined with increasing Foreign Ownership Limits, this could increase the weight of the UAE in EM indices and inflows from international investors,” he said.

The UAE currently has a 1.2 per cent share in the MSCI EM index with 9 members. The Dubai Index has 37 members with a 43 per cent bank and 29 per cent real estate concentration. The Abu Dhabi Index has 62 members with a 51 per cent bank concentration.

“These new listings in the utilities, hospitality and logistics sector will provide much needed diversification,” he said.

In 2021, UAE equities saw an increase in trading value driven by new issuance. Abu Dhabi IPOs in 2021 had a strong average aftermarket return.

He noted that while emerging market equities have no correlation to the rise in oil prices, the UAE and Saudi equities provide a diversified investment vehicle for profiting from oil rallies. “As oil prices have risen, the region sees a broad equity uptick as the economic benefits flow down to industry and consumer spending.”

Sectors with a bright outlook include banking, telecom and real estate. In the real estate sector, residential, malls and hospitality have performed well in 2021 and this should continue into 2022. “Increased dividend payout is the near term catalyst for further appreciation. Corporates Aldar and Emaar already have excellent sustainability frameworks in place,” Gravier said.

In the banking sector, the dollar peg and rising rates should support an expansion in net interest margins. Gradual rate hikes should not affect loan growth and would focus on banks with larger CASA deposit mix. Loan growth expectations are 7-9 per cent in 2022 supported by the real estate and consumer boom.

In telecom, the UAE with 50 per cent 5G coverage is amongst the most advanced globally in speed of connectivity and download, which combines to outstanding ground connectivity. “Valuations are high as telecom stocks rallied in 2021 on increased foreign ownership limits and good results. Du and Etisalat, continue to benefit from high data usage and the growth of work from home, streaming and gaming all of which need high speed data plans. Dividend yields remain attractive,” said Gravier.

— issacjohn@khaleejtimes.com