Emerging Markets: Why Dubai and Abu Dhabi should be more than just a stopover  

The United Arab Emirates is enjoying an economic boom and should be on the radar of emerging markets investors, argues Pendal’s JAMES SYME

• Government reforms leave UAE booming
• Find out about Pendal Global Emerging Markets Opportunities fund
• Watch a recent Emerging Markets overview webinar with James Syme

MANY of us give little thought to the United Arab Emirates unless we’re stopping over briefly on the way to Europe.

But led by Abu Dhabi and Dubai, the UAE is fast emerging as an attractive destination for investment, not just tourism.

“Since Covid, the UAE has staged a really powerful comeback,” says James Syme, who co-manages the Pendal Global Emerging Markets Opportunities fund.

Syme and his team follow a top-down, country-level approach to emerging markets, believing that investment analysis should start at a national level in this asset class.

You can read James’s recent views on Brazil here and Indonesia here.

“In the UAE, we’ve seen a big recovery in overnight visitor numbers,” says Syme. “We’ve also seen a full recovery in oil production which took a big hit during Covid.

“But perhaps more importantly, we’ve seen a number of structural changes that are helping support the recovery.”

The UAE is a union of seven emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al-Quwain, Fujairah, and Ras Al Khaimah. Each emirate is governed by its own monarch, and one of these monarchs serves as the president of the UAE.

The current president, Abu Dhabi’s Sheikh Mohamed bin Zayed Al Nahyan, has led a series of reforms that have driven an economic boom in the region.

Among the reforms is the creation of a new visa category for non-nationals that allows residency for up to 10 years.

“On that sort of timeframe, people become interested in investing in property and building a stake in the country rather than simply renting, working and moving on,” says Syme.

“That’s really helped support the movement of foreign nationals into the country.

“The UAE is not a democracy, but its leadership is sensitive to the needs of its citizens and has undertaken reforms that have really started to feed growth.”

A regional centre of finance

Other reforms have been aimed at supporting the development of Abu Dhabi and Dubai as financial centres for the region.

“We’ve seen a significant number of listings and IPOs — in 2022, the region had about a quarter of all of global IPO volume.

“As a result, we’ve seen a lot of hedge funds, asset managers and investment banks setting up offices in Abu Dhabi and Dubai, hiring locally, renting offices and buying properties.

“So, there’s a significant boom in it as a financial destination.”

Syme says the Gulf is attractive to the finance industry because it has similar time zone advantages to London — the workday overlaps Asia in the morning and the US in the afternoon.

“Why industrial clusters occur is always a bit of a mystery, but the UAE certainly seems to be the regional winner over Bahrain or Qatar or Riyadh.

“Already having an expat community and strong travel and transport links is a great advantage.”

The two main local carriers, Emirates and Etihad, have also maintained their global routes just as Asian airlines cut back, leaving a significant share of the world’s very-long-haul traffic going through Dubai or Abu Dhabi, says Syme.

And behind it all, oil production is booming – with production back to 3.5 million barrels a day.

“Recovering global tourism, recovering global trade and the recovery in oil production and prices, plus deep structural changes, have driven a boom in the region,” says Syme.

From an investment point of view, Syme says his fund has exposure to domestic sectors in retail, commercial and residential real estate and the commodity side of the economy in both Dubai and Abu Dhabi.

“It remains an active area of search for us. It’s one of our overweights that’s been doing well and which we think is perhaps flying below the radar.”

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About Pendal Global Emerging Markets Opportunities Fund

James Syme, Paul Wimborne and Ada Chan are co-managers of Pendal’s Global Emerging Markets Opportunities Fund.

The fund aims to add value through a combination of country allocation and individual stock selection.

The country allocation process is based on analysis of a country’s economic growth, monetary policy, market liquidity, currency, governance/politics and equity market valuation.

The stock selection process focuses on buying quality growth stocks at attractive valuations.

Find out more about Pendal Global Emerging Markets Opportunities Fund here
 
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.

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