Recent equity selloff in Dubai not reflective of broader macroeconomic systemic issues, says Bofa Merril Lynch - Business Intelligence Middle East - bi-me.com - News, analysis, reports:
"UAE: don’t sell Dubai
"We do not view the sharp equity selloff as reflective of broader macroeconomic systemic issues. Dubai’s economic recovery has become more entrenched, and the 2020 Expo bid provides upside potential. Vulnerabilities remain around maturing restructured debt from 2015 onward and potential for real estate overheating. The EXD curve is steep; ample local liquidity supports a MW stance.
Equity selloff not justified by changed macro fundamentals
The Dubai stock market recent sharp selloff in the past week extended the market’s losing streak and brought the market about 25% off its May highs. On our side, the selloff raises the question as to whether the selling is justified on the basis of changed macroeconomic fundamentals or acute vulnerabilities. Our views were last expressed here and we see no reason to depart from our constructive stance. The poor equity performance was not matched in the credit space, as Dubai 5-yr CDS widened by just 20bps over mid-June levels, while sovereign bond prices held steady. Also, equities rebounded strongly yesterday.
Our equity strategy team is now turning more constructive on both the UAE and Qatar within the framework of positioning, valuations and macro catalysts. The team notes that the selloff in the UAE and Qatar has come about as the catalyst of MSCI inflows waned while GEM and Frontier investors cut positioning in markets trading at extreme valuations with little support from key macro drivers."
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