(Bloomberg) -- Visitors to Dubai and Cairo will agree that buying most things on the streets of the Egyptian capital is a lot cheaper than in the Middle East's business hub. Not stocks though.
Since turning cheaper than peers in the EGX 30 Index in November, equities on the Dubai Financial Markets General Index are showing the biggest discount in almost three years. A rally in Egyptian stocks since the country's 2016 currency float made its benchmark the best performer in the Middle East last year, while a lack of positive catalysts has weighed on shares in Dubai.
“The undervaluation in Egypt shares was explained, to a certain extent, by the currency risk premium that was perceived by investors last year,” said Allen Sandeep, director of research at brokerage Naeem Holding in Cairo, who covers companies in both countries. “With no more currency risks and repatriation challenges, there is a valuation discount adjustment that is bound to happen.”
While Egyptian shares are benefiting from economic reforms, stocks in the U.A.E. are linked to the weaker dollar, vagaries of the oil market and tourism, he said. The DFMGI has tumbled 8.6 percent in the past 12 months, compared with a 20 percent rally in the EGX 30.
Equities in the U.A.E. are “more event driven than value driven,” said Sandeep. “At the moment, people are still quite nervous about the outlook of oil.”
--With assistance from Ziad Daoud (Economist) and Dana El Baltaji
To contact the reporter on this story: Filipe Pacheco in Dubai at fpacheco4@bloomberg.net.
To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Namitha Jagadeesh, Shaji Mathew
©2018 Bloomberg L.P.
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