* Abu Dhabi shares rise on potential bank merger
* Dubai’s Arqaam says Union National Bank has big upside
* Kuwait blue-chips rally, FTSE Russel inclusion nears
By Hadeel Al Sayegh
DUBAI, Sept 4 (Reuters) - Abu Dhabi shares rallied on Tuesday after Abu Dhabi Commercial Bank (ADCB) said it was exploring potential merger talks with two other lenders, while regional markets were muted amid continued U.S. trade disputes with other countries.
ADCB said on Monday it was in early merger talks with Union National Bank (UNB) and Al Hilal Bank that could potentially form a lender with $113 billion in assets.
“Investors are reacting to the positive news of the potential merger of ADCB and UNB and possibly Al Hilal Bank,” said Tariq Qaqish, managing director of the asset-management division at Mena Corp. Financial Services in Dubai.
“The banking sector globally is moving towards digital, therefore closing branches, focusing on cost to income ratios is vital for banks to compete and be able to generate higher returns on equity. The UAE is no different.”
Dubai-based Arqaam Capital said it saw 40 percent upside for UNB from Monday’s closing price of 3.86 dirhams a share, according to a note to clients.
Arqaam added it saw ADCB as the consolidator in the transaction and that a merger would give the combination a higher index representation on the MSCI Emerging Markets Index.
ADCB stocks surged 12.8 percent to eight dirhams a share, the highest since August 2015. UNB jumped 14.8 percent to 4.43 dirhams, the highest since March this year.
“The sector in the UAE is over-banked, therefore mergers to create bigger entities with better synergy and efficiency is positive for Abu Dhabi,” Qaqish added.
The Abu Dhabi Securities Exchange General Index closed 0.9 percent higher at 4,984 points.
The Dubai Financial Market General Index was up 0.3 percent, led by real estate and logistics companies.
Damac Properties, the owner and operator of the only Trump-branded golf club in the Middle East, was up 0.5 percent.
Emaar Development, a unit of Dubai property firm Emaar Properties, was up 1.9 percent. Dubai-based contractor Drake & Scull International was up 4.4 percent.
Middle East stock markets were mostly muted on Tuesday on concerns that trade disputes involving the United States could hurt the global economy.
“The unpredictability of the U.S. trade policies towards global trade partners is affecting investors’ appetite towards equity markets,” Qaqish said.
The Saudi Tadawul All-Share Index was up 0.3 percent, showing muted interest from investors after they priced in the incorporation of Saudi shares into MSCI’s Emerging Market benchmark next year.
Shares in Saudi Real Estate Co jumped 6.6 percent to 14.72 riyals in its heaviest trade since May after the company said it had signed a framework agreement with the Presidency of State Security, which combines counterterrorism and domestic intelligence services, to provide “end-to-end delivery” for all the agency’s projects in over 100 locations.
In Kuwait, bluechip stocks such as National Bank of Kuwait (NBK) and Agility were boosted by expectations for inflows into those stocks when the country begins to join the FTSE Russel emerging markets index on Sept. 24.
NBK and Agility rose one percent and 1.3 percent respectively, while the Kuwait benchmark was up one percent.
SAUDI ARABIA * The index rose 0.3 percent to 7,968 points. DUBAI * The index rose 0.3 percent to 2,837 points. ABU DHABI * The index gained 0.9 percent to 4,984 points. QATAR * The index rose 0.2 percent to 9,820 points. KUWAIT * The index was up one percent at 5,279 points. BAHRAIN * The index rose 0.3 percent to 1,338 points. OMAN * The index was flat at 4,429 points. (Reporting by Hadeel Al Sayegh, Editing by Louise Heavens and Mark Potter)