BlackRock cuts Dubai stock holdings on ‘speculative excess’

An investor looks up at screens displaying stock information at the Dubai Financial Market. Dubai’s benchmark index has returned the most among 50 of the world’s largest equity markets this year with a gain of 24% as the UAE’s real-estate and banking industries recovered.

Bloomberg/Dubai

 BlackRock Frontiers Investment Trust, a $297mn fund run by the world’s biggest asset manager, said it “substantially” reduced UAE holdings last month on concern stocks rallied too much.

“While the UAE economy in general is performing well and Dubai is booming, we are increasingly concerned about the level of speculation in the market,” investment managers Sam Vecht and Emily Fletcher in London said in a regulatory filing.

BlackRock had $4.2tn under management at the end of 2013.

Dubai’s benchmark index has returned the most among 50 of the world’s largest equity markets this year with a gain of 24% as the country’s real-estate and banking industries recovered. Shares in Abu Dhabi, the UAE capital, have gained 15% in 2014. Both measures are in overbought territory, with the DFM General Index’s relative strength index trading at 76, among the highest in the world, and above the 70 level that signals to some analysts that a security has rallied too much.

The combined daily average traded value on the Dubai and Abu Dhabi bourses this year is more than $800mn, which compares with $74mn per day for both markets in the same period two years ago, according to data complied by Bloomberg. The surge is driven by retail investors and not by institutional investors, BlackRock said.

Positive sentiment surrounds both Abu Dhabi and Dubai even as there is evidence of “speculative excess that warrants caution,” they said. The fund reduced its allocation to the UAE to 9.1% in January from 13.4% a month earlier, the filing shows.

The ADX General Index advanced 0.7% to the highest level since August 2008 by the close in Abu Dhabi on Thursday, while the DFM gauge advanced by the same amount.

The UAE, the second-biggest Arab economy, had overtaken Nigeria as the fund’s biggest investment destination in December. The country is now the third in the list behind Nigeria and Qatar, according to the filing.

Qatar and the UAE were last year raised to emerging- market status from frontier by index provider MSCI, potentially paving the way for greater foreign investment in those nations.

BlackRock cut Aldar Properties, the biggest publicly traded developer in Abu Dhabi, from its 10-largest equity investments and added NMC Health, which operates hospitals and pharmacies in the UAE and trades in London. Emaar Properties, the developer of the world’s tallest tower, accounted for 2.8% of the fund’s gross assets compared with 3.7% in December.

Aldar gained 1.2% on Thursday after dropping to a three-week low on Wednesday, while Emaar rallied 2.1% to 8.95 dirhams, the highest close in more than five years.

The BlackRock frontier fund returned 33% last year, according to a regulatory filing last month.