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Valuation In The Services Sectors Of The Emirates Stock Market

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  • John Simpson

Abstract

The United Arab Emirates (UAE) is a member of the Gulf Cooperating Council countries (GCC) and over recent years has indicated willingness for implementation of the economic reforms necessary for the future evolution of a modern, open stock market. This study uses relative valuation techniques to estimate an intrinsic value for each of the banking, insurance and other services sectors in the UAE. Price to earnings and price to book value ratios for each sector are compared. The methods of comparison show that all sectors are substantially overpriced. It is likely that such overpricing of the services sectors is due to a combination of low expected growth rates of dividends and lack of market efficiency. The thinness of trading and high abnormal returns are probably related. There are numerous problems with relative valuation methods, but even in developing markets such as the UAE, they can represent one more information set for the use of investors (including foreign investors in due course) seeking focus on share value within particular services sectors in the context of portfolio diversification and risk and return relationships.

Suggested Citation

  • John Simpson, 2006. "Valuation In The Services Sectors Of The Emirates Stock Market," The IUP Journal of Applied Economics, IUP Publications, vol. 0(1), pages 89-97, January.
    • Handle: RePEc:icf:icfjae:v:05:y:2006:i:1:p:89-97
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