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MONEY MATTERS

ME funds positive on bonds, lukewarm on stocks

DUBAI, April 2, 2016

Middle East fund managers have turned bullish towards fixed income and less positive on equities as they prepare for an economic slowdown in the Gulf this year, a monthly Reuters survey shows.

The most recent survey of 14 leading fund managers, conducted over the past 10 days, found 29 per cent expecting to raise their fixed income allocations to the region over the next three months and 14 per cent to reduce them.

At the same time, seven per cent anticipate raising their equity allocations and 14 per cent reducing them. That is the survey's biggest balance in favour of fixed income relative to equities since May 2015.

In last month's survey, 36 per cent of managers expected to increase exposure to Middle East equities, while seven per cent foresaw cutting it. The figures for fixed income were 21 per cent and 21 per cent.

The shift towards fixed income is partly due to global monetary policy trends.

"On top of the Bank of Japan's move into negative rates territory and the European Central Bank's expansion of quantitative easing purchases, the US Federal Reserve has also pushed out its tightening schedule," said Sachin Mohindra, portfolio manager at Abu Dhabi's Invest AD.

But it is also due to a partial rebound of oil prices to around $40 a barrel from below $30. At current price levels, Gulf governments still face heavy pressure on their finances and austerity steps will slow economies this year, but a panic over the sustainability of their economic models has eased for now.

Improved sentiment towards GCC assets in general can be seen in regional bond yields - an April 2023 sukuk from state-owned utility Saudi Electric is now trading at 3.55 per cent, down more than 1 percentage point from its peak in late January - and a rebound of most GCC currencies in the forwards market, as devaluation fears dissipate.
    
Meanwhile, many managers think the rebound of Gulf stock markets in response to the oil price recovery has mostly ended, as investors focus on upcoming first-quarter earnings announcements and the fact that the economic environment will remain difficult this year.

"In specific UAE and in general GCC markets witnessed positive moves during the last stage. However, momentum faded out through the last two weeks due to a lack of positive market news," said Tamer Mustafa, vice-president for asset management at the UAE's Union National Bank.

"In my opinion, markets need a new catalyst to continue the upward trend." He said such a catalyst could be the April 17 Doha meeting among oil producers to discuss an output freeze.

However, many analysts think any freeze would probably not boost oil prices further, especially since Iran appears unlikely to restrain its output.

First-quarter corporate earnings in the GCC will not necessarily boost the markets.

"Q1/2016 results will have neutral effect on the relevant equity markets as most major companies will try and match last year's same-period results, but probably show lower than Q4/2015 results," said Mohammed Ali Yasin, managing director of Abu Dhabi's NBAD Securities.

Among individual equity markets, an improvement in sentiment towards Egypt is the most striking result in the survey. Thirty-six per cent of managers now expect to raise their Egyptian equity allocations in the next three months and seven per cent to reduce them.

That is the most positive balance towards Egypt since December. Last month, 21 per cent expected to cut their exposure there and seven per cent to raise it.

The survey confirms that this month's devaluation of the Egyptian pound has had a fundamental impact in improving sentiment towards Egypt, although it has by no means resolved the country's longstanding hard currency shortage and more depreciation may be on the way.

"Investors are more confident to allocate money to the country," said Sebastien Henin, head of asset management at The National Investor in Abu Dhabi.

Managers turned negative on balance towards Qatar in the latest survey; seven per cent now expect to increase equities exposure there and 21 per cent to lower it. In the last survey, the figures were 14 per cent on each side.

Qatar is often bought because of its high dividend yields, but many stocks are now going ex-dividend, temporarily reducing the market's attraction - a phenomenon which tends to occur every year.-Reuters




Tags: stocks | funds | bonds | Mideast |

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