Despite a Middle East economic miracle, Gulf stock markets are paying an unfair price for global instability, says Amer Halawi, head of research, Al Ramz Capital
Spinneys was recently the latest hot UAE market topic. With an exceptional story and brand, explosive margins, and a compelling valuation, the listing fetched an oversubscription of sixty-four times, equivalent to $24 billion. Yet, with all this hype, the shares trade today barely 5% above their admittedly attractive subscription price.
Spinneys is not alone prompting questions from investors and issuers. The economic fundamentals of the GCC are undoubtedly strong, yet we wonder why stock market performances are so relatively deceptive. For perspective, the weighted annual performance of regional markets since 2022 has averaged less than 3%, or half the S&P and ten times less than NASDAQ.
What is hanging over our markets, and how are they impacted by current global issues?
Many questions, few answers
A broad look at the world reveals significant underlying tensions. First, politically. The invasion of Ukraine disrupted trade, capital, and human flows. The war should have ended in a blip but still rages on. The pain in Gaza took over instead, a failed blitzkrieg so far, which has put the sword of Damocles over the Middle East. Once and again, the Taiwan invasion threat comes to the fore, to spread a little more fear. All of this amid political instability from elections expected globally in almost sixty-four countries, where more than half the world population will vote for change. Everyone is watching how global politics could derail the system. Many questions, few answers.
Academics wonder where economic cycles have gone, or how long the current Goldilocks scenario will last
Then, we have the global economy. China is looking for a new path to growth, while deflating its property bubble, and subsidizing its industry to become the largest car exporter globally. America responds with ever-higher tariffs, further unsettling the trade. Meanwhile, academics wonder where economic cycles have gone, or how long the current Goldilocks scenario will last. The “higher for longer” interest-rate narrative has been spooking markets as it brings more questions than answers.
With all this ongoing, observers expect a market correction. Instead, the great American bull market is decidedly on. Valuations are soaring. People are calling it a melt-up. In a tale of two worlds, emerging markets are left behind, including ours.
The Middle Eastern Economic Miracle
There is a widely anchored belief that “Dubai benefits when things go sour elsewhere”. In the current cruel world, Dubai – and Abu Dhabi by extension – should therefore flourish, and the local bourses should soar. The reality is different, however.
Economically, the UAE and the region are doing brilliantly. With 4.2% expected GDP growth in the UAE this year, the backdrop is enviable in the Arabian Peninsula at large, on the back of resilient oil prices. Visionary infrastructure spending crowds the landscape from Jeddah to Muscat, as every city in the Middle East now aspires to more visibility. In Saudi, banks can barely keep up with financing needs for local infrastructure projects.
The IPO bonanza has added more than $200 billion in market capitalization in the UAE alone since 2021, and should continue, with 29 regional listings announced this year. Property prices are flirting with previous tops. Off-plan projects are back in fashion as they were in 2008, while local developers announce overwhelming transactions. Banks keep expanding their balance sheets. The earnings of listed companies keep surprising the market, quarter-in and quarter-out.
Abu Dhabi and Dubai are certainly flourishing, notwithstanding the surrounding economic and political noise. True to its reputation, Dubai does well as others sink. Abu Dhabi, on the other hand, has fittingly coined its motto as “the capital of capital” and continues to attract in its belly the behemoths of finance. The Emirati siblings have become a magnet for human talent, businesses, migrants, and capital. As the cities grow, so do their visions of “ever more.” Yet, the stock market, which should reflect these fundamental strengths, does nothing. Why?
Financial markets tell a different story
For a more complete perspective, we have compared regional stock-market performances against the US. Blended UAE index performance is quite telling. 2021 gave us an exceptional post-covid rebound of 61%, preceding a good 17% in 2022. This led the way to a flat 2023 and a disappointing 2024, so far. As regional economies strengthened, their stock markets weakened, in an exact mirror effect to our American counterpart. A better comparison should be to emerging markets. Here, too, we disappoint. China, one of the culprits behind emerging weakness, is rebounding strongly as we had expected, while we stand pat.
As such, we have been excelling fundamentally but swimming against the tide when it comes to our stock markets
As we see it and have been saying it, our markets are “tail” exchanges – A small proportion of the bigger emerging landscape. As such, we have been excelling fundamentally but swimming against the tide when it comes to our stock markets. This is probably the reason why every regional regulator wishes for a reclassification of our markets to “developed”, instead of emerging or frontier.
Like it or not, regional military conflicts have spooked investors. When waves of Russians and Ukrainians landed here, they bought property and crowded the schools, supermarkets, and highways – a blessing for sure – but they did not flood the stock market. When international investors fled Russian and Chinese indices, they dumped our tail markets as well. We, the Golden Baby, were flushed with the bathwater.
Listen to the market
Against all odds, this cruel world is hurting us. We are not immune to global events. The charts will show a clear, inverse correlation between our stock markets and increasing interest rates. Our regional bourses are paying an unfair price. Now what? We might one day be upgraded to developed markets. This would bring in milk and honey, as global investors rush for a piece of the pie. However, our journey is a long one, and should be driven by the means, not the end.
Our wish for bigger and brighter – and better valued – stock markets, will only materialize when we offer the required infrastructure, transparency, sustainability, liquidity, accessibility, and accountability. Meanwhile, regional markets continue to trade at reasonable relative multiples and to offer exceptional value for the patient investor.
*Amer Halawi is head of research at Al Ramz Capital
