BlackRock Frontiers Investment Trust Plc, a $297 million fund run by the world’s biggest asset manager, said it “substantially” reduced United Arab Emirates holdings last month on concern stocks rallied too much.
“While the U.A.E. 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 $4.2 trillion 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 percent as the country’s real-estate and banking industries recovered. Shares in Abu Dhabi, the U.A.E. capital, have gained 15 percent 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 $800 million, which compares with $74 million 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 Persian Gulf nation to 9.1 percent in January from 13.4 percent a month earlier, the filing shows.
The ADX General Index advanced 0.7 percent to the highest level since August 2008 by the close in Abu Dhabi today, while the DFM gauge advanced by the same amount.
The U.A.E., 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 U.A.E. were last year raised to emerging-market status from frontier by index provider MSCI Inc., potentially paving the way for greater foreign investment in those nations.
BlackRock cut Aldar Properties PJSC, the biggest publicly traded developer in Abu Dhabi, from its 10-largest equity investments and added NMC Health Plc, which operates hospitals and pharmacies in the U.A.E. and trades in London. Emaar Properties PJSC, the developer of the world’s tallest tower, accounted for 2.8 percent of the fund’s gross assets compared with 3.7 percent in December.
Aldar gained 1.2 percent today after yesterday dropping to a three-week low, while Emaar rallied 2.1 percent to 8.95 dirhams, the highest close in more than five years. NMC, which sold shares to the public in 2012, rose 0.2 percent as of 11:49 a.m. in London, taking a year-to-date gain to 4.6 percent.
The BlackRock frontier fund returned 33 percent last year, according to a regulatory filing last month.