Vaccine Adds to ‘Excellent Recipe’ for Recovery in Middle East

16 Dec 2020, 12:56 PM IST

(Bloomberg) -- Stock markets in the United Arab Emirates and Saudi Arabia are poised to lead the region’s recovery from the impact of the pandemic and low oil prices as countries in the Middle East prepare for their vaccination roll-outs, analysts say.

The UAE and Bahrain have already registered China-backed Sinopharm Group Co Ltd.’s vaccine for use, and Egypt received its first shipment. Meanwhile, Saudi Arabia and Kuwait authorized the use of Pfizer Inc. and BioNTech SE’s product.

Investors are pinning their hopes on the recovery after the region’s stocks underperformed broader emerging markets in 2020. Saudi Arabia’s benchmark index has gained 3.2% this year, with the Dubai gauge losing 8.5%, Abu Dhabi up 1.1% and Bahrain down 7.3%. In comparison, the MSCI Emerging Markets Index has rallied 12%.

Here’s a roundup of comments on how assets in the region could respond to the rollout:

Joice Mathew, head of equity research at United Securities in Muscat

Lower dollar, stronger oil price and vaccine developments are “an excellent recipe for continuation of the investor confidence and momentum”
Logistic, consumer, real-estate and hospitality stocks should attract more investors. Airlines could get some allocations but “I doubt the longevity of the rally”
“Saudi, UAE, and Qatar are the markets to focus for the year-end. These markets have the momentum, and they have more active foreign money invested in. UAE offers attractive valuations as well”

Hasnain Malik, chief equity strategist at emerging-markets research company Tellimer

Gulf markets haven’t rallied on vaccine optimism but “this is not surprising because oil does not have as bright recovery prospects as other commodities, like copper, and actions to address large fiscal deficits may counter some of the recovery in non-oil growth”
“Compared to others in emerging and frontier markets, the GCC, with the exception of Dubai, is not as geared to the recovery of tourism”
“Tourist exposed equity markets and companies likely enjoy the main benefit of the global distribution of vaccines. That means Dubai and Egypt, particularly, and parts of the Saudi listed universe”

Abdul Kadir Hussain, the head of fixed-income asset management at Arqaam Capital in Dubai

“Ever since the news of the first vaccine’s success, regional bond indexes are up sharply. We would expect that to continue especially for the high-yield issuers in the region”
Real economy is still reflecting the impact of Covid-19, but a reopening of global economies will be met with a strong bounce in fundamental economic data. “Oil prices should also be positively impacted, along with trade, tourism, financial services”

Ehsan Khoman, head of Middle Eastern research at MUFG Bank in Dubai

Oil prices have been supported by vaccine optimism, and “we remain resolutely bullish on oil heading into 2021, which in conjunction with the gradual tapering of OPEC+ cuts, bodes well for the GCC region”
Although the region was hit with oil-virus shocks at a macro level, prospects and risks differ between Gulf nations. “We remain most optimistic about the outlook of the UAE, Saudi Arabia and Qatar”
“The higher cyclical sensitivity of the UAE makes it best positioned to rebound from the strong global economic recovery we forecast over the next 12 months”

Divye Arora, money manager at Daman Investments in Dubai

“We are quite positive on the cyclical and reopening plays in real estate, airlines, travel and tourism and fitness sectors which got heavily penalized due to the lock downs, social distancing issues and decline in tourism and spending”