Emerging Market (EM) equities are looking pretty good at the moment, with the prospects of further quantitative easing out of the US Federal Reserve in particular helping to push a host of markets higher. Here at BMI, my colleagues and I have already entered bullish positions in our Key Market Views mock portfolio on Colombian, Turkish and Polish stocks, and have recently added Abu Dhabi’s ADX General Index into the mix. Given our view for a weak dollar and higher oil prices over the coming months, the subsequent improvement in domestic liquidity conditions within the UAE should eventually filter through to the equity market.
Of course, there are a host of other reasons that I like the ADX at the moment. Most importantly in our view, however, is the fundamental reassessment of risk perceptions towards the UAE that is currently underway (just look at the compression in the Abu Dhabi 5-year Credit Default Swap in recent weeks). Following on from last year’s financial crisis, perceptions of the UAE as an inherently safe bet obviously took a bit of a tumble. But with investors now starting to realise that the worst is over, there is significant potential for the ADX to begin catching up with its EM peers going forward. We’ve already seen Dubai tap international debt markets in the past month, while there has also been substantial progress on Dubai World’s debt restructuring talks. Taken together, the clouds over the UAE are certainly starting to clear.
That said, it would be foolish for anyone to think that a robust return to pre-crisis growth rates are on the cards. Given the excess leverage which still needs to be unwound, and the bleak prospects for the Dubai property market, it’s going to be an uphill struggle for the next year at least. Nevertheless, when you dig below the UAE’s headline growth figures, you see that most of this growth will in fact be driven by Abu Dhabi (rather than Dubai). With considerable oil wealth and the capacity to undertake large-scale stimulus efforts, I expect the former to outperform the latter for the foreseeable future.
Looking at a longer-dated chart for the ADX, the scope for gains over the coming months and quarters is massive in BMI’s view. While I am currently targeting a move of 15%, this might be only the beginning…
Historic Anniversary Observed
On a separate note, one that underscores the rapid passage of time, today (October 26) marks the 25th anniversary of Marty McFly’s first journey through time in Back to the Future. It was in the early hours of October 26, 1985, that Marty set off to 1955 in a time-travelling Delorean from Twin Pines Mall (later Lone Pine Mall, due to ripple effects), Hill Valley, California, with Libyan terrorists in hot pursuit. Prior to this, Marty’s mentor, ‘Doc’, states his intention of travelling 25 years into the future. Doc never travelled to 2010, but he did later journey to October 2015, a date that I am eagerly awaiting.
Source: Risk Watchdog
