Mena financial markets will outperform emerging markets (EM) in 2017, but political instability continues to be seen as the main source of risk for Mena markets, according to a survey of international fund managers and institutional investors.

Potential for higher trade barriers (42 per cent of votes) is seen as the key risk to global markets in 2017, the survey by EFG Hermes, a leading financial services corporation in the Middle East and North Africa, said.

The survey was conducted at the opening session of the One on One 2017 conference in Dubai, and it polled 510 international fund managers and institutional investors from 260 institutions, and 147 leading companies from Mena and Frontier on the outlook for the markets.

Within Mena and Frontier, most voters (46 per cent) said Egypt will be the top performing market in US dollar (USD) terms in 2017. Within Mena sectors, most investors (32 per cent) continue to see healthcare as the one with greatest performance potential in 2017. Finally, on Pakistan, 54 per cent of voters said they expect the market to be lower in USD terms one year from now, in line with trends seen in previous EM upgrades.  

Most participants expected oil to end 2017 at $50-60/bbl. The audience expected Mena earnings to rise by 0-10 per cent in 2017, which is in line with consensus. "We see low single digit earnings growth for 2017, as we believe that Saudi Arabia earnings are unlikely to grow by 10 per cent in aggregate for the year," EFG Hermes said.  

Despite consensus view on lower oil for longer, most participants (61 per cent) believed that GCC pegs will not change by 2020.

About 56 per cent of participants expect that the Fed will hike rates twice this year, but there was no view on whether or not EM funds will see net outflows in 2017 with votes split equally among the 'Yes' and 'No' answers. However, 77 per cent of participants said that passively managed funds will continue to grow at the expense of active AUMs.
Moreover, despite big frontier markets (such as Pakistan, Qatar, and UAE) leaving the frontier index in recent years, 68 per cent of the participants believed that frontier will continue to be a standalone offering, which is good news for Kuwait which most participants (55 per cent) believe will remain a frontier market by 2020.

Finally, very few participants expect Saudi Arabia to join MSCI EM by 2018, with most voters (34 per cent) saying 2019 will be the year when Saudi Arabia gets upgraded. Moreover, most participants (39 per cent) said that Aramco’s IPO value will be between $1 trillion and $1.5 trillion. - TradeArabia News Service