#Saudi, #UAE Stocks That Are Pricier Than Nvidia (NVDA), Apple (AAPL), Microsoft - Bloomberg

Saudi, UAE Stocks That Are Pricier Than Nvidia (NVDA), Apple (AAPL), Microsoft - Bloomberg

Much has been written about frothy US equity valuations. The Nasdaq 100 index came under some pressure over the summer but the tech-heavy benchmark is still up 16% for the year, while the S&P 500 continues to trade near record levels.

A lot of that’s down to Nvidia, which is the key beneficiary of a race to upgrade data centers to handle artificial intelligence software and has gained 141% this year to become the world’s third-most-valuable company. While its outlook last week failed to match up to investors’ expectations and the stock slumped 6.4%, it still trades at a price-to-earnings ratio of 34.

That’s high, but it also looks like a bargain compared to some of the biggest companies in the Middle East. Regional equities are up so far this this quarter, meaning some stocks come with even more eye-watering premiums.

Case in point: Saudi Arabia’s ACWA Power — the kingdom’s third-largest listed firm, which trades at 136 times forward earnings. That makes it about 10 times more expensive to own than a basket of European utilities including Iberdrola and National Grid.

“I think there is a retail investor portion there that is dictating some of those prices,” Mohammed Ali Yasin, founder and chief executive officer of Oracle Financial Consultancy and Investments told my colleague Joumanna Bercetche on Bloomberg TV. “You find 80%-90% of those companies are held by governments and so the true market mechanism is not really dictating it.”

The Saudi wealth fund owns about 44% of ACWA, which is up nearly eightfold since its 2021 debut. Most analysts, including Morgan Stanley and Citigroup, recommend investors sell. JPMorgan Chase analysts said this summer the firm’s “valuations look already rich as compared to both main peers and the overall market context.”

Over in the United Arab Emirates, International Holding’s 43,000% rally since the start of 2019 has seen it transform into one of the world’s largest companies. Valuation metrics like price-to-book ratio have surged, and IHC trades at a premium to even Warren Buffett’s Berkshire Hathaway.

Unlike ACWA, the Abu Dhabi-based firm has no analysts tracking it, highlighting another issue for investors looking at the Middle East as an investment destination. Research is sparse for firms like IHC and its units Alpha Dhabi and Multiply Group. Abu Dhabi National Energy, known as Taqa, is one of the biggest utilities in the world, with not a single foreign analyst covering it. Only three regional ones track the near $80 billion firm with a trailing price-to-earnings ratio higher than Microsoft or Apple.

“The question is do those companies want to be covered?,” Yasin said. “Sometimes, some of those companies don’t see the value. They are closely held by certain big party and that big party is happy where it is. It looks at it as a holding company, and spins off some of its underlying companies.”

Some of these Abu Dhabi firms are all linked to a powerful royal — Sheikh Tahnoon bin Zayed Al Nahyan. Several companies tied to his empire were part of the August FTSE Russell index review, meaning international investors are now more likely to be passive investors in these stocks that have little-to-no analyst coverage.

There are signs though, that firms are taking a more active interest in the region. BlackRock is expanding its research division to the Middle East and Bernstein opened a new office in Dubai to work with investors looking to increase regional exposure.

“I think the market will force those companies to open up once the liquidity dries up and they need some of that foreign money coming in,” Yasin said.