These Dubai Stocks Are Seen Slumping Deeper as MSCI Review Looms

(Bloomberg) -- Three of Dubai’s biggest real-estate and development companies are at risk of being removed from one of the world’s most popular emerging-market benchmarks this year as a slowing economy drags down the emirate’s property values.

Damac Properties PJSC’s stock has plunged by about two-thirds in the past 12 months, while Emaar Malls PJSC and Emaar Development PJSC are both down 33 percent. That performance sets them up for exclusion from the MSCI Emerging Markets Index in May under the compiler’s criteria for membership in the gauge, according to Mohamad Al Hajj, equities strategist at the research arm of EFG-Hermes Holding Co. Their departure could lead to combined investment outflows of about $220 million, he said.

The three companies are by far the worst performers in 2019 among the eight stocks on Dubai’s real estate and construction index, a gauge that’s dropped in the past year as building in the emirate outpaced expected demand growth. The housing component of Dubai’s consumer-price index has fallen for all but three months since at least May 2016, according to data compiled by Bloomberg.

The recent share-price losses put the developers out of the coverage range of compiler MSCI Inc.’s main emerging-market index, which considers only large and mid-cap stocks, according to Al Hajj. Added to that is the fact that they have low free-float levels, he said.

Robert Ansari, head of Middle East business at MSCI, didn’t respond to a request for comment on the Dubai developers’ index status.

Read: Dubai Is Achilles Heel to EM’s Worst-Performing Property Stock

The companies have the lowest weight in the MSCI U.A.E. Index, which is used for calculating the main emerging-markets gauge. If deleted, they “will no longer benefit from passive inflows into EM beyond May,” Al Hajj said in an emailed response to questions. Removal would spark outflows of $80 million each for Emaar Development and Emaar Malls, and $60 million for Damac Properties, he estimated.

Amr Aboushaban, investor relations chief at Damac, said the company qualifies under two of MSCI’s four criteria for remaining in the emerging-market measure, and “nothing is stopping us from meeting the additional requirements” as the developer works to reduce volatility in a cyclical stock market. Damac has “remained focused on the fundamentals of our business” after expecting the real-estate slowdown, enabling it to remain liquid and “capture opportunities,” he said.

  • Damac stock was downgraded by Bank of America Merrill Lynch to underperform from neutral earlier this month
  • The 12-month stock declines at Emaar Development and Emaar Malls have exceeded the combined 26 percent industrywide drop in developing economies. Spokesmen at the companies said they couldn’t immediately comment on Al Hajj’s remarks
  • Late last year, DXB Entertainments PJSC slumped to the lowest since its IPO in 2014 after the Dubai-based theme-park and hotel operator was deleted from the MSCI EM index in May

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