Mideast funds bullish on Saudi, bearish on UAE -survey

Thu Jul 31, 2014 12:24am EDT

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* Most managers since last September bullish on Saudi
equities
    * Follows announcement of market-opening plan
    * Managers become more positive on Qatar
    * But most bearish on UAE in history of survey
    * Concern about valuations, regulation

    By Nadine Wehbe and Azza Al Arabi
    DUBAI, July 31 (Reuters) - Middle East funds are heavily
bullish towards Saudi Arabian stocks after news the market will
open to direct foreign investment, while they are bearish on the
United Arab Emirates because of concern about high valuations.
    The latest Reuters survey of 15 leading investment managers,
conducted over the past 10 days, showed two-thirds expected to
raise their equity allocations to Saudi Arabia in the next three
months, up from 40 percent in the last survey a month ago. The
ratio of bullish managers was the highest since September 2013.
    "The opening of the Saudi market is definitely a huge
positive and should attract a lot of active money," said Naveed
Ahmed, senior portfolio manager at Securities and Investment Co
of Bahrain.
    "The index has breached the psychological barrier of 10,000
points and can extend gains over the next few weeks and months.
The medium- to long-term prospects for the Saudi market look
very good."
    The Saudi market regulator announced on Tuesday last week
that it planned to open the bourse, the Arab world's biggest
with a capitalisation of about $550 billion, to direct
investment by foreign institutions in the first half of next
year. Currently, foreigners can only invest through swaps and
exchange-trade funds. 
    To avoid destabilising the market, the regulator is expected
to grant investment licences only gradually, so a sudden flood
of foreign money is unlikely. Saudi Arabia may not be included
in a major MSCI equity index before 2017 at the earliest.
    But many fund managers think the market-opening could be a
game-changer for foreign investors in the Gulf, offering them
unprecedented liquidity and diversity. 
    "With an extensive representation of sectors, the Saudi
stock exchange trades about $2 billion per day, which is
significantly larger than any other single Gulf Cooperation
Council market," said Yong Wei Lee, head of regional equities at
Dubai's Emirates NBD.
    Bader Ghanim Al Ghanim, head of GCC asset management at
Kuwait's Global Investment House, said not only the
market-opening plan but strong second-quarter earnings
announcements from Saudi companies made the market attractive at
present.
    A range of companies including Saudi Arabian Mining Co
(Ma'aden), Saudi Cement and food producer
Savola Group have reported quarterly earnings above
analysts' forecasts in the last couple of weeks. 
  
    The survey was conducted by Trading Middle East, a Reuters
forum for market professionals.
    <----------------------------------------------------------
    Graphic of survey results:   link.reuters.com/map52w
    ---------------------------------------------------------->
    
    UAE
    The results of the survey suggested there will not be a mass
outflow of funds from other Gulf markets to the Saudi market as
it opens up; instead, fresh funds will be raised.
    "We are not shifting from one market to another; we are
rather investing new money in Saudi," Ghanim said.
    Twenty percent of fund managers now expect to raise their
equity allocations to Qatar over the next three months, up from
7 percent in last month's survey.
    However, managers have become considerably more bearish
towards the UAE; only 7 percent intend to increase equity
allocations there and 47 percent to decrease them, compared to
ratios of 27 percent and 33 percent a month ago.
    The ratio of managers who are bullish towards the UAE is the
lowest since the survey was launched last September; the ratio
of bearish managers is the highest.
    One reason is valuations, which surged during a bull run
last year and early this year. Dubai is now trading at
about 14 times projected corporate earnings for this year, well
above roughly 10.5 times for the MSCI Emerging Markets Index. 
    Saudi Arabia is also at about 14 times, but managers appear
much more willing to tolerate such a high multiple in the Saudi
case because of that market's greater liquidity and diversity.
    Another factor hurting perceptions of the UAE is regulatory
standards. Many fund managers felt UAE regulators should have
been more proactive in ensuring information disclosure at Dubai
builder Arabtec, whose shares plunged in May and June,
dragging down the entire market, because of rumours about its
relations with big shareholder Aabar Investments. 
    A Reuters survey earlier this year found Saudi Arabia
enjoying a better reputation than other major Gulf markets among
fund managers for its enforcement of rules on corporate
disclosure and improper share trading. 
    
    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 - 4   DECREASE - 2   SAME - 9 

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 - 2   SAME - 11 

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 - 1   DECREASE - 7   SAME - 7

b) Qatar
    INCREASE - 3   DECREASE - 4   SAME - 8

c) Saudi Arabia
    INCREASE - 10  DECREASE - 1   SAME - 4

d) Egypt
    INCREASE - 5   DECREASE - 1   SAME - 9

e) Turkey
    INCREASE - 1   DECREASE - 1   SAME - 13

f) Kuwait
    INCREASE - 0   DECREASE - 1   SAME - 14
    
    NOTE - Institutions taking part in the survey are: Abu Dhabi
Fund for Development; Ahli Bank Oman; Al Rayan Investment LLC;
Al Mal Capital; Arqaam Capital; Emirates NBD; Global Investment
House; Mashreq Bank; Naeem Financial Investments; National Bank
of Abu Dhabi; Rasmala Investment Bank; NBK Capital; Schroders
Middle East; Securities and Investment Co of Bahrain; Amwal
Qatar.

 (Writing by Andrew Torchia)
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