Vaccine Rollout Lifts Dubai Shares to Top of the Equity Pile

(Bloomberg) -- One of the world’s fastest vaccine rollouts is fueling one of its best stock rallies.

As the United Arab Emirates pushes its inoculation program, the Dubai Financial Market General Index has climbed 12% this year, reversing its 10% slump in 2020. Only two major markets are performing better. MSCI Inc.’s gauge of developing-nation stocks has advanced 8.6%.

“Vaccines are a prime reason for this,” said Divye Arora, a money manager at Daman Investments Psc in Dubai. “We have seen a move globally away from growth and defensive toward value and cyclical. Dubai offers both value and cyclical exposure.”

The UAE, the third-biggest oil producer in OPEC, has administered more than two million coronavirus vaccine doses, inoculating nearly a fifth of its population, as it tries to emerge from the pandemic. The campaign is seen as key to reviving the economy of Dubai, which is reliant on income from travel and tourism.

The second-biggest emirate, Dubai has seen the fastest increase in valuations in the Gulf since March. Its price-earnings ratio based on estimated profits in the next 12 months has jumped to 12.6 times from last year’s low of 4.8. That’s still cheaper than neighboring Abu Dhabi.

The decline in the equity risk premium and “strong expected earnings growth starting in the second half of 2021 and through 2022 justifies the multiple expansion,” Arora said. Dubai’s shares lagged behind a broader recovery in emerging markets last year amid concern about the impact of the pandemic on hospitality and aviation.

Developing-nation stocks have risen to an all-time high this year, amid a flood of liquidity and optimism over a global economic rebound, surpassing levels last reached before the 2008 global financial crisis.

The Dubai gauge rose 1.4% on Wednesday to its highest in almost a year. A sustained rally will depend on the real estate sector, according to Hasnain Malik, the head of equity strategy at Tellimer, who’s based in the city.

Yet “on a 12-month view, Dubai shares offer cheap value and tourism is enough to get the market going,” he said.

(Updates with Tellimer comments in last two paragraphs.)