Still too early to buy stocks in Qatar and the UAE

An announcement on the inclusion of Qatar and the UAE into the MSCI emerging markets index could emerge as early as today. The National Bank of Abu Dhabi told ArabianMoney this would be worth $3-4 billion in new investment flows for these bourses if it goes ahead.

However, fund managers will have until this time next year to make their investments, although quite clearly they will have to buy stocks in the UAE and Qatar by then if these nations join the index of which they will comprise 0.67 per cent.

Wait and see?

Will they all decide to jump now, in the middle of the hot summer and with global stock markets down for seven weeks and showing signs of entering a long correction until October, or will they wait a bit, perhaps until after Ramadan?

ArabianMoney thinks most of the excitement about the MSCI announcement is already priced into the market. Once it is made there could even be a bout of profit taking with local investors retreating to the sidelines until the autumn. They can also see the clouds on the global financial horizon and that oil prices are now falling.

It is not that the UAE or Qatari bourses are expensive. Quite the opposite: the NBAD UAE1 exchange traded fund is selling on a price-to-book ratio of just under one, a yield of 2.85 per cent and price-to-earnings ratio of 10.

Given the high growth prospects for the oil-rich UAE, even if this is somewhat hobbled by Dubai’s debt,  this would be an attractive entry point in more normal and stable global economic conditions. But you hardly need to glance at the news headlines to know that this is not the case right now.

That is why global stock markets have been on a losing streak for the past seven weeks, their longest decline for seven years. And while a bounce is always likely in such a sell-off, there is not much on the horizon to suggest that this trend will be broken.

Double dip recession?

The global economy continues to be menaced by unsustainable sovereign debt mountains and assets prices are only being sustained by artificially low interest rates.

The 2.85 per cent yield on the UAE1 ETF reflects the low cost of money in the world today. Sadly if that yield were to have to rise along with global interest rates then that would automatically result in lower UAE share prices.

You can understand investor caution. They have very good reason to be cautious. The ArabianMoney newsletter is the best source of independent analysis to prepare for the stock market recovery to come (sign-up here).