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MONEY MATTERS

ME funds bullish on Saudi, cautious on UAE

Dubai, September 30, 2013

Fund managers in the Middle East are set to pump more money into Saudi Arabia over coming months but may withdraw some funds from Dubai because of concern its red-hot market has risen too fast, said a Reuters survey.

The survey involving 16 leading Middle East-based investment institutions, the first of its kind in the region, was conducted over the past 10 days by Trading Middle East, a Reuters forum for market professionals.

The survey was launched in September and will be published monthly. Half of the institutions said they expected to increase their overall equity allocations to the Middle East over the next three months, while only 13 per cent said they would decrease them.

According to the survey, the fund managers cited strong economic growth in the Gulf, which is being aided by high oil prices and consumer spending booms in many countries, as well as young and growing populations across the Middle East.

For many managers, these factors outweigh jitters over geopolitical threats such as the civil war in Syria, it added.

Saudi Arabia's stock market, where the main index has risen 17 per cent this year, lagging several other Gulf bourses, looks set to be the main beneficiary of this optimism in coming months, the survey revealed.

Three-quarters of the 16 institutions said they expected to increase their equity allocation to Saudi Arabia in the next three months, while none expected to reduce it.

In addition to Saudi Arabia's economic growth, the country has been preparing for years to open its stock market to direct investment by foreigners. A date for the reform has not been set but many in the industry think it could happen by early next year, which would almost certainly boost stocks, the survey stated.

By contrast, many institutions expressed caution about stock markets in the UAE, where DFMGI has rocketed 71 per cent this year on the back of a recovery in its real estate prices, and ADI is up 46 per cent.

Much of Dubai's most recent gains have been due to heavy trading by local retail investors. International index compiler MSCI has decided to upgrade the UAE and Qatar to emerging market status next June, which should attract fresh foreign money.

But Middle Eastern institutions, believing many Dubai stocks have become fully valued for now, are less bullish about the short term; Dubai is trading at about 16 times last year's corporate earnings, compared to about 13 times for the MSCI Emerging Markets Index.

Thirty-eight percent of the institutions said they expected to decrease their equity allocation to the UAE in the next three months, while 31 per cent intended to increase it and the rest said they would keep their UAE exposure flat.

Many foreign portfolio investors have stayed out of Egyptian markets this year because of the economic and political turmoil surrounding the ouster of Islamist President Mohammed Mursi in July.

But the Reuters survey suggested some institutions may return in coming months as $12 billion in financial aid pledged by Egypt's Gulf allies helps to stabilise its economy.

Thirty-eight per cent of institutions said they expected to increase their equity allocation to Egypt over the next three months, while 19 per cent said they would probably reduce it.

There was less optimism about Turkey, where the stock market is down 4 per cent this year and the lira currency has tumbled to record lows against the dollar as rising US interest rates have slashed the foreign capital inflows on which Turkish markets have depended.

Only one institution - 7 per cent of the respondents to that question - expected to increase its equity exposure to Turkey in the next three months, while 29 percent predicted they would reduce it, the survey stated.-Reuters




Tags: UAE | Saudi | investors | funds |

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