Earnings growth estimates of the UAE also surged by around 100 basis points to 9.6 per cent, the bank said in a research report titled, ‘Frontier EMEA Equity Market Monitor: Frontier leads GEM on flow, earnings and valuation.
BoA Merrill Lynch said GCC equity markets would continue to benefit from increased global investment inflows, and specifically from active Global Emerging Market (GEM) funds.
While the UAE has emerged as the world’s second best performing, Saudi Arabia was ranked as a top 10 market performer with year to date increase of 21 per cent. Qatar performed equally well with year to date increase of 22 per cent, said Michael Harris, managing director and head of EEMEA Equity Strategy.
“Along with Saudi Arabia, the UAE equity market could inevitably be a structural winner in the long term. Saudi Arabia being the GCC’s biggest economy, there is a lot to benefit when the capital market opens up in the kingdom. Regionally, there will also be far reaching positive implications of the MSCI EM upgrade for the UAE and Qatar,” said Harris.
The bank noted that the UAE’s oil production trend remained positive despite September tick down while inflation was trending higher but remained subdued.
BoA Merrill Lynch noted that the equity market is getting more support from key macro drivers but they affect the GCC countries differently. It is particularly favourable for Saudi equities as they stand to benefit from record highs of domestic oil production and stronger China data. Meanwhile, the UAE’s slowing momentum has priced in the drop in risk appetite but oil production remains positive. While in Qatar, the recent slowdown of money growth remains a potential short-term risk whereas oil production is stable.
Financial stocks are the biggest component of the equity market sector breakdown in the UAE (76 per cent), Qatar (53 per cent) and Saudi Arabia (33 per cent). The UAE and Saudi financials and Saudi materials dominate the list of stocks with both positive consensus 2013 EPS growth estimates and the strongest 12-week momentum.
BoA Merrill Lynch has predicted that the UAE’s GDP would grow on winning the Expo 2020 bid by 0.5 per cent in 2016 and 2019 and by two per cent in 2020 and 2021 on the back of expectations that the government, visitor and participant spending will reach Dh84 billion between 2015 and 2021. The real estate and construction sectors will capitalize most on this event.
Analysts at BofA Merrill Lynch Global Research said the estimated impact of a successful Dubai Expo 2020 bid would be $23 billion or 24.4 per cent of the emirate’s GDP, spread over the period 2015 to 2021. This would include the total spending by the host city, participant and visitors, as well as the impact on the supply chain and consumption, Merrill Lynch said.
BofA Merrill Lynch analysts had pointed out that while the bid is being made on a federal UAE level, financing of capital requirements will be carried out or guaranteed by the Dubai government and thus weigh on the ongoing fiscal consolidation plans. Authorities estimate total financing costs of $8.4 billion (8.9 per cent of GDP), of which the Dubai government will commit to fully funding the capital needs of $6.8 billion (7.2 per cent of GDP).