For those not familiar with Middle East geography, Dubai is a
city in an emirate that shares the same name that is part of the
United Arab Emirates.
Like Qatar, UAE is classified by some major index providers as
a frontier market, but also like Qatar, UAE stands on the cusp of
promotion to emerging markets status
Dubai-listed stocks are doing their best to help. Showing at
least one advantage of frontier markets'
low correlations to U.S. equities
, the Dubai Financial Market General Index (DFMGI) has surged
more than 38 percent this year. That makes the market one of the
top-performers in the world in 2013, but it does not mean stocks
there are expensive.
Based on assumed earnings growth of 10 percent to 15 percent,
Dubai stocks trade at about 10 times this year's earnings,
according to Reuters
. That is inexpensive compared to a broader universe of frontier
markets shares. For example, the iShares MSCI Frontier 100 ETF
) has a P/E ratio of over 16,
according to iShares data
UAE is FM's fourth-largest country weight behind Kuwait, Qatar
and Nigeria. A string of 40-month highs hit by Dubai stocks last
month is one reason FM has jumped 8.5 percent year-to-date. The
ETF has attracted $95.4 million in assets under management in
just eight months of trading.
Sell In May... It is something that is often talked about in
the U.S. That May is the start of the worst six-month period in
which to own stocks. May has also been unkind to Dubai stocks as
the market there has slumped in four of the past five Mays. There
is evidence that this year may be different as investors are
taking recently received dividends and putting those payouts back
to work in the market,
Among the stocks helping lead the resurgence in Dubai equities
are construction company Drake and Scull and property developer
Emaar Properties. The PowerShares MENA Frontier Countries
) features an almost 8.4 percent allocation to Emaar and a
smaller weight to Drake and Scull.
Still, PMNA devotes 25.7 percent of its weight to UAE making
the nation the ETF's largest country weight. PMNA is up just 1.5
percent this year, but the ETF has picked up the pace in the past
month, gaining 5.3 percent.
The ETF's valuation is more inline with that of Dubai stocks
with a P/E ratio of 11.57 and a price-to-book ratio of 1.32,
according to PowerShares data
Speaking of Dubai and dividends, there is the WisdomTree
Middle East Dividend Fund (NASDAQ:
). That ETF allocates more than 35 percent of its weight to UAE
and features a whopping distribution yield of 4.94 percent.
The aforementioned stocks, along with Dubai Islamic Bank,
itself a sturdy performer this year, are found among GULF's
48-stock lineup. GULF's index is dividend weighted and has
outperformed the MSCI Arabian Markets Ex-Saudia Arabia Index
while being less volatile,
according to WisdomTree data
Catalysts Investors can also opt for the Market Vectors Gulf
States Index ETF (NYSE:
) as a way of getting Dubai exposure. That ETF allocates 30.6
percent of its weight to UAE and Emaar Properties is the
third-largest holding at 7.3 percent. MES has jumped 5.7 percent
in the past month.
None of the
mentioned here are cheap in terms of fees with expense ratios
ranging from 0.7 percent for PMNA to 0.99 percent for MES. Still,
investors may want to consider dealing with those fees or at
least consider these ETFs for trades because there are looming
catalysts for Dubai stocks.
First and foremost, MSCI conducts its annual index review in
June. If both UAE and Qatar are promoted to emerging markets
status, a move that would likely facilitate more foreign direct
investment, these ETFs would surge. In addition to UAE, all of
the fund's mentioned here have significant Qatar exposure. The
ETF highlighted here that has the lowest Qatar weight is the
iShares MSCI Frontier 100 ETF with a 16.6 percent allocation to
In the fourth quarter, Dubai will learn if its bid to play
host to the World Expo 2020 is the winning bid. That would be
another potential catalyst for these ETFs. Or investors could
just embrace the compelling valuations, low correlations to U.S.
stocks and the fact that Dubai stocks still languish about 65
percent below their pre-financial crisis highs to push these ETFs
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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