* Smallest bullish number since survey launched last
* Follows sharp pull-backs in some stock markets
* Some funds ready to go back into UAE
* Still bearish on Qatar, Kuwait
* More managers to increase bond allocations than equities
By Nadine Wehbe and Azza Al Arabi
DUBAI, June 30 Middle East funds have become
more cautious about investing in equities after sharp pull-backs
in some markets underlined how high valuations had left them
vulnerable, a monthly Reuters survey showed.
The latest survey of 15 leading investment managers,
conducted over the past 10 days, showed only 13 percent expect
to raise their equity allocations to the region over the next
three months - the lowest ratio since the survey was launched in
September last year.
Twenty percent expect to decrease their regional equity
allocations. The balance marked a significant shift from the
last survey a month ago, when 33 percent intended to raise
equity allocations and 20 percent to decrease them.
Heavy profit-taking pushed many Middle East stock markets
down sharply in June. The Dubai market, for example,
has plunged 19 percent since the end of May, partly because of a
collapse of the shares of construction firm Arabtec
after management turmoil at the company.
In some cases, the markets' pull-backs have been the
sharpest for over a year, suggesting an indiscriminate uptrend
in the region - the result of its recovery from the global
financial crisis and in Egypt, the easing of a political crisis
- has ended.
"The forecast is for the market volatility to persist as
broader market valuations remain rich," said V. Gowribalan, head
of asset management at Ahli Bank Oman.
He said Ahli still saw value in Gulf Cooperation Council
equities, particularly Saudi Arabia, Qatar and Oman, along with
some areas of the United Arab Emirates.
But he added that the key driver of individual stocks would
now be news headlines or rumours, not a broad uptrend.
"It is our view that the 'reflation trade' is done. Moving
forward we expect stock picking to be the mantra."
Middle East fixed income may benefit from the change. The
latest survey showed 20 percent of funds expect to raise their
fixed income allocations over the next three months, while 13
percent expect to reduce them.
It is the first time in the history of the survey that the
number of managers intending to increase fixed income
allocations exceeds the number intending to buy more equities.
The survey was conducted by Trading Middle East, a Reuters
forum for market professionals.
Graphic of survey results: link.reuters.com/paq32w
The pull-back in UAE and Qatar stocks has been partly due to
profit-taking, after those markets soared in the run-up to their
inclusion in MSCI's emerging market index at the end of May.
Many fund managers anticipated the post-MSCI drop and
started reducing their positions a month or two previously,
leaving local retail investors to bear the brunt of losses.
The latest Reuters survey shows some funds are now ready to
consider going back into the UAE. Twenty-seven percent expect to
increase their equity allocations there, while 33 percent expect
to reduce them; that compares with ratios of 20 percent and 40
percent a month ago.
"UAE stocks started to be attractive again and a bottom will
be formed near the current level," said Hazem Kamel, managing
director for asset management at Egypt's Naeem Financial
However, sentiment has not improved towards Qatar. Only 7
percent of managers now expect to raise their Qatari equity
allocations and a third foresee decreasing them, compared to 20
percent and 33 percent a month ago.
Over the past month, British media have made fresh
allegations of corruption in Qatar's successful bid to host the
2022 soccer World Cup. Qatar has denied the allegations and fund
managers do not expect it to lose hosting rights, but several
said that if the rights were lost, it would be negative for the
Kuwait remains near the bottom of fund managers' preferences
among major Middle East stock markets, with only 7 percent
expecting to raise their allocations and 13 percent to decrease
This is partly because of political tensions in the country,
which threaten to continue blocking economic development
projects. Last week Kuwait's ruler told his people not to
threaten stability by playing "games" with politics; he urged
Kuwaitis not to talk publicly about an investigation into
reports of a recording of people discussing an alleged plot
against the governing system.
"The political scene in Kuwait is ugly," said Bader Ghanim
Al Ghanim, head of asset management for the GCC at Kuwait's
Global Investment House.
1) Do you expect to increase/decrease/keep the same your overall
equity allocation to the Middle East in the next three months?
INCREASE - 2 DECREASE - 3 SAME - 10
2) Do you expect to increase/decrease/keep the same your overall
fixed income allocation to the Middle East in the next three
INCREASE - 3 DECREASE - 2 SAME - 10
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 - 4 DECREASE - 5 SAME - 6
INCREASE - 1 DECREASE - 5 SAME - 9
c) Saudi Arabia
INCREASE - 6 DECREASE - 3 SAME - 6
INCREASE - 4 DECREASE - 2 SAME - 9
INCREASE - 2 DECREASE - 1 SAME - 12
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 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
(Writing by Andrew Torchia)