TAILIEUCHUNG - Global Research Sector – Real Estate Equities - UAE June 22, 2011

Discussions regarding the generation of abnormal profits through active trading have long held a prominent position in the finance literature. Beginning with Jensen (1968), a large literature has explored the ability of mutual fund managers to systematically picks stocks and time their investments so as to generate abnormal performance and justify the fees and expenses of active money management. Despite the volume of articles in this vein, evidence on the systematic ability of portfolio managers to generate abnormal profits has yielded results that are mixed at best, and generally negative. These findings are often ascribed to the fact that the stock market is overall generally considered to. | Global Research Sector - Real Estate Equities - UAE Globa I June 22 2011 UAE Real Estate Sector o 05 LU CD LU Faisal Hasan CFA Head of Research fhasan@ Tel 965 2295-1270 Mostafa El-Maghraby Senior Financial Analyst melmaghraby@ Tel 965 2295-1279 Global Investment House Debt burden an overhang for economic growth in the medium term Pressure on property prices persistent through to end of 2012 Prefer Emaar and Sorouh over Aldar on liquidity and near term earnings Strong Buy - Emaar Hold - Aldar Buy - Sorouh Debt burden an overhang for economic growth in the medium term The debt burden on Dubai government and its GREs is a key overhang to economic growth in our view. Total Dubai related debt is estimated at USD113 billion equivalent to of the UAE 2010 GDP. Despite the several successful rounds of debt restructuring by Dubai GREs the large debt burden still proposes challenges given exposure of the banking sector to the troubled real estate GREs. However markets appear to have priced in short term factors with the appetite for Dubai risk growing given the continuous improvements in Dubai CDS currently at 332 bps the lowest level since November 2009 driven by solid evidence that Dubai is well positioned as the region s safe haven during the recent political tensions. Pressure on Dubai Abu Dhabi property prices persistent through to 2012 Dubai residential selling prices have dropped almost 56 from their peak in 4Q08 until 1Q11 while those of Abu Dhabi lost 45 over the same period. We estimate a current vacancy rate of 30 in Dubai and 3 in Abu Dhabi. The figure for the latter is subject to significant increase in the coming years given the influx of 65 000 units in the residential market. We forecast another drop of 10 to take place through to the end of 2012 in Dubai and a 15-20 decline in Abu Dhabi. We prefer Emaar and Sorouh on better liquidity profile and near term earnings Of the three big real estate names in the

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