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Think Dubai Is More Expensive Than Cairo? Look at Stocks

Updated on
  • Equity estimated price-to-earnings ratios show Dubai cheaper
  • Egypt has been implementing a series of economic reforms
An Egyptian soldier climbs the stairs outside of Egypt's central bank in Cairo, Egypt. Photographer: Shawn Baldwin

Visitors to Dubai and Cairo will agree that buying most things on the streets of the Egyptian capital is a lot cheaper than in the Middle East’s business hub. Not stocks though.

Since turning cheaper than peers in the EGX 30 Index in November, equities on the Dubai Financial Markets General Index are showing the biggest discount in almost three years. A rally in Egyptian stocks since the country’s 2016 currency float made its benchmark the best performer in the Middle East last year, while a lack of positive catalysts has weighed on shares in Dubai.

“The undervaluation in Egypt shares was explained, to a certain extent, by the currency risk premium that was perceived by investors last year,” said Allen Sandeep, director of research at brokerage Naeem Holding in Cairo, who covers companies in both countries. “With no more currency risks and repatriation challenges, there is a valuation discount adjustment that is bound to happen.”

While Egyptian shares are benefiting from economic reforms, stocks in the U.A.E. are linked to the weaker dollar, vagaries of the oil market and tourism, he said. The DFMGI has tumbled 8.6 percent in the past 12 months, compared with a 20 percent rally in the EGX 30.

Equities in the U.A.E. are “more event driven than value driven,” said Sandeep. “At the moment, people are still quite nervous about the outlook of oil.”

— With assistance by Ziad Daoud, and Dana El Baltaji

(Updates index performance in fourth paragraph.)
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