Middle East funds slightly more cautious on equities -survey

Thu Nov 28, 2013 12:00am EST

Related Topics

* Proportion expecting to boost equity allocations down
slightly
    * Growing number of funds expect to cut fixed income
    * Bullish ratio on Saudi Arabia down sharply vs 2 months ago
    * Prospect of Iranian oil supplies may be a factor
    * Interest in Qatar rises because of annual dividends

    By Nadine Wehbe and Azza Al Arabi
    DUBAI, Nov 28 (Reuters) - 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 favour 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.
    <-----------------------------------------------------------
    Graphic of survey results:   link.reuters.com/hyj94v
    ----------------------------------------------------------->
    
    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 programme 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."
     
    SURVEY RESULTS  
     
    1) Do you expect to increase/decrease/keep the same your 
overall equity allocation to the Middle East in the next three 
months? 
    INCREASE - 7   DECREASE - 0     SAME - 8   
     
    2) Do you expect to increase/decrease/keep the same your 
overall fixed income allocation to the Middle East in the next 
three months? 
    INCREASE - 2     DECREASE - 5     SAME - 8      
         
    3) Do you expect to increase/decrease/keep the same your 
equity allocations to the following countries in the next three 
months? 
     
    a) United Arab Emirates 
    INCREASE - 5     DECREASE - 5     SAME - 5  
     
    b) Qatar 
    INCREASE - 5     DECREASE - 1   SAME - 9 
     
    c) Saudi Arabia 
    INCREASE - 4     DECREASE - 0     SAME - 11      
     
    d) Egypt 
    INCREASE - 5     DECREASE - 2     SAME - 8       
         
    e) Turkey 
    INCREASE - 0     DECREASE - 3     SAME - 12  
     
    f) Kuwait 
    INCREASE - 1     DECREASE - 2    SAME - 12      
      
    NOTE - Institutions taking part in the survey are: Abu Dhabi
Fund for Development; Ahli Bank Oman; Al Rayan Investment; Al  
Mal Capital; Arqaam Capital; Emirates NBD; Global  
Investment House; ING Investment Management (Middle East);  
Mashreq Bank; Naeem Financial Investments; National Bank of Abu 
Dhabi; Rasmala Investment Bank; Mohammed Alsubeaei & Sons  
Investment Co (MASIC); Schroders Middle East; Securities and  
Investment Co of Bahrain.  

 (Writing by Andrew Torchia)
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