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Mideast funds more cautious on equities, says survey

Fund managers in the Middle East are becoming cautious towards some equity markets.

Source : Reuters / 16 Dec 2013

Fund managers in the Middle East are showing signs of becoming more cautious towards some equity markets as change looms in the global economic environment, a Reuters survey showed.

Forty-seven percent of 15 managers in the monthly survey of leading Middle East-based investment institutions said they expected to increase their overall equity allocation to the region in the next three months, while the rest expected to keep it steady.

That is a vote in favor of equities, but somewhat less resounding than the proportion of 56 percent expecting to boost their equity allocations in last month’s poll.

The survey also showed a rise in the proportion expecting to decrease their allocations to Middle East fixed income in the next three months, to 33 percent from 19 percent in October.

This appears to reflect the approach of monetary policy tightening by the U.S. Federal Reserve, which is now expected to start by early next year - although any reduction of stimulus is likely to be very gradual.

The survey was conducted in the past 10 days by Trading Middle East, a Reuters forum for market professionals.
Saudi Arabia

One stock market where fund managers have become somewhat less bullish is Saudi Arabia, where 27 percent said they expected to increase equity allocations in the next three months. That is down from 56 percent in October and 75 percent in September, when the survey was launched.

Third-quarter earnings for some Saudi companies were disappointing, or at least did not deliver the positive earnings surprises for which some investors were hoping.

Also, a new economic factor for the Gulf has emerged in the last few weeks: the possibility that supplies of Iranian oil could resume flowing freely into the global market in the next year, if Tehran seals a comprehensive international deal on its nuclear program following Sunday’s partial agreement.

Analysts do not think the impact would be disastrous for Saudi Arabia - Brent crude oil, now around $110 a barrel, might fall below $100 but would remain at levels where Riyadh would enjoy big budget surpluses. It could take years for Iran’s creaking oil industry to resume full production.

Nevertheless, a return of Iran to the oil market and the international economy is a possibility which fund managers must now consider. In addition to pushing down oil prices, potentially hitting product prices for Saudi petrochemical firms, it could prompt Saudi Arabia to cut back its oil exports.

“The Saudi market is expected to pick up further over the next three months but not on a straight line,” said John Sfakianakis, chief investment strategist at Saudi investment firm MASIC.

“However liquidity is healthy and as we head into the final month of this year and the new year, IPO activity will pick up, giving a market boost. Geopolitical concerns have subsided and oil prices will remain above $100 per barrel over the next quarter, providing confidence to investors to stay bullish.”

The survey also showed increasing interest in Qatar’s equity market; 33 percent said they expected to increase allocations there, up from 13 percent in October.

This appears to reflect interest in companies for their dividends as the annual dividend season approaches; Qatari companies such as banks are known for high dividend payments in the Gulf.

The survey was conducted just before Wednesday’s decision by the Paris-based Bureau International des Expositions to award Dubai the right to host the 2020 World Expo.

Preparations for the Expo are likely to boost Dubai’s real estate and construction industries, but many fund managers think many of the benefits are already priced into stocks, and over the long run Dubai will develop regardless of the Expo.

The latest survey showed a continued sharp split of opinion over whether United Arab Emirates stock markets have become fully valued for now, with a third of respondents expecting to increase their allocations there, a third expecting to cut them and a third expecting to stay the same.

“With the UAE market having been the darling of the region in 2013, and the second-best performing equity market in the world, risks appear to the downside, regardless of the outcome of the Expo 2020 vote,” said Akber Khan, director of asset management at Qatar’s Al Rayan Investment.

“A significant correction however would represent a major buying opportunity.”


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