Morgan Stanley Turns Bullish on UAE Stocks Citing Vaccines

(Bloomberg) -- Stocks in the United Arab Emirates are highly exposed to a broad recovery, with positive virus vaccine news “far from priced,” according to Morgan Stanley.

The country’s equities, which are lagging emerging-market peers this year, got a double-upgrade to tactical overweight from strategists including Marina Zavolock and Regiane Yamanari. The UAE’s exposure to cyclical sectors including tourism, leisure and financials -- a burden during the pandemic so far -- could become a tailwind with Covid vaccines in sight, they said.

Morgan Stanley had previously double-upgraded UAE shares to overweight in Feb. 2019, citing an early recovery in the property sector and appealing valuations. That view was reversed this year as the coronavirus pandemic triggered a slump in oil price, the main source of revenue for economies in the Gulf, and hit the country’s tourism and real estate industries.

“The UAE’s cyclical recovery has already begun,” Zavolock and Yamanari write, noting stronger third-quarter spending as local residents consumed at home rather than abroad during the hot summer. They also consider the country’s handling of the pandemic to be among the strongest in the eastern Europe, the Middle East and Africa (EEMEA) region, and believe the winter tourism season will be better than expected.

Their decision to rate the country tactical overweight, rather than outright overweight, stems from concerns over a real estate glut and banks’ low capital ratios.

On Monday, Morgan Stanley upgraded Emaar Malls PJSC to overweight, expecting the owner of Dubai’s biggest shopping center to reap the benefits of an accelerating recovery in tourism. The stock gained 5.4% in the past two sessions. Dubai’s DFM General Index rose 0.8% on Tuesday, the most among Gulf region benchmarks, while Abu Dhabi’s ADX General Index climbed 0.2%.

More from the report:

• Expects EEMEA stocks to outperform as earnings estimates for next year have flatlined at lows, “and should recover as consensus incorporate vaccine data”
• Turns tactically positive on Turkey, but equal-weight medium term on recent political changes and valuation re-rating potential
• Cuts Kuwait and Qatar to underweight on high valuations, with Kuwait likely to see a sell-off following MSCI’s upgrade to emerging market
• Stays overweight Russia, Hungary and Greece
• Stocks added to the EEMEA focus list: Emaar Malls PJSC, TCS Group Holding, Sberbank of Russia PJSC, Erste, Life Healthcare Group Holdings

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