September 30, 2013 / 5:01 AM / 4 years ago

Middle East funds bullish on Saudi, cautious on UAE -survey

* Many institutions positive on Gulf equities
    * Big majority says set to boost Saudi allocations
    * Plurality favours cutting UAE exposure
    * Survey shows some foreign funds may return to Egypt
    * Not yet time to go back into Turkey

    By Nadine Wehbe 
    DUBAI, Sept 30 (Reuters) - Fund managers in the Middle East
are set to pump more money into Saudi Arabia over coming months
but may withdraw some funds from Dubai because of concern its
red-hot market has risen too fast, a Reuters survey showed.
    The survey of 16 leading Middle East-based investment
institutions, the first of its kind in the region, was conducted
over the past 10 days by Trading Middle East, a Reuters forum
for market professionals. The survey was launched in September
and will be published monthly.
    Half of the institutions said they expected to increase
their overall equity allocations to the Middle East over the
next three months, while only 13 percent said they would
decrease them.
    Fund managers cited strong economic growth in the Gulf,
which is being aided by high oil prices and consumer spending
booms in many countries, as well as young and growing
populations across the Middle East. For many managers, these
factors outweigh jitters over geopolitical threats such as the
civil war in Syria.
    "We are strong believers in the region and are constructive
on its capital markets," said Ziad Chaaban, managing director
for asset management at Egyptian investment bank EFG-Hermes.
    "We think favourable macroeconomic and demographic drivers
will push the growth trajectory higher and with it the size and
liquidity of the capital markets."
    Saudi Arabia's stock market, where the main index 
has risen 17 percent this year, lagging several other Gulf
bourses, looks set to be the main beneficiary of this optimism
in coming months.
    Three-quarters of the 16 institutions said they expected to
increase their equity allocation to Saudi Arabia in the next
three months, while none expected to reduce it.
    In addition to Saudi Arabia's economic growth, the country
has been preparing for years to open its stock market to direct
investment by foreigners. A date for the reform has not been set
but many in the industry think it could happen by early next
year, which would almost certainly boost stocks. 
    <-----------------------------------------------------------
    Graphic of survey results:    link.reuters.com/xyp43v
    ----------------------------------------------------------->
    
    DUBAI
    By contrast, many institutions expressed caution about stock
markets in the United Arab Emirates, where Dubai has
rocketed 71 percent this year on the back of a recovery in its
real estate prices, and Abu Dhabi is up 46 percent.
    Much of Dubai's most recent gains have been due to heavy
trading by local retail investors. International index compiler
MSCI has decided to upgrade the UAE and Qatar to emerging market
status next June, which should attract fresh foreign money.
    But Middle Eastern institutions, believing many Dubai stocks
have become fully valued for now, are less bullish about the
short term; Dubai is trading at about 16 times last year's
corporate earnings, compared to about 13 times for the MSCI
Emerging Markets Index.
    "To get a 60 percent increase in eight months - this scares
me. Each time we get a big increase in the market it is followed
by a big decrease," Abdullah Al Durdunji, chief treasury officer
at the Abu Dhabi Fund for Development, said of Dubai's volatile
market.
    He said his personal view was that it made sense to cut UAE
equity exposure and increase holdings of fixed income
instruments from high-quality firms, while hedging the risk that
U.S. interest rates could rise and pull up rates in the Gulf.
    Thirty-eight percent of the institutions said they expected
to decrease their equity allocation to the UAE in the next three
months, while 31 percent intended to increase it and the rest
said they would keep their UAE exposure flat.
    Many foreign portfolio investors have stayed out of Egyptian
markets this year because of the economic and political turmoil
surrounding the ouster of Islamist President Mohammed Mursi in
July.
    But the Reuters survey suggested some institutions may
return in coming months as $12 billion in financial aid pledged
by Egypt's Gulf allies helps to stabilise its economy.
    Thirty-eight percent of institutions said they expected to
increase their equity allocation to Egypt over the next three
months, while 19 percent said they would probably reduce it.
    There was less optimism about Turkey, where the stock market
 is down 4 percent this year and the lira currency
 has tumbled to record lows against the U.S. dollar as
rising U.S. interest rates have slashed the foreign capital
inflows on which Turkish markets have depended.
    Only one institution - 7 percent of the respondents to that
question - expected to increase its equity exposure to Turkey in
the next three months, while 29 percent predicted they would
reduce it.

    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 - 8     DECREASE - 2     SAME - 6
    
    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 - 9
    
    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 - 6     SAME - 5
    
    b) Qatar
    INCREASE - 4     DECREASE - 1     SAME - 11
    
    c) Saudi Arabia
    INCREASE - 12     DECREASE - 0     SAME - 4
    
    d) Egypt
    INCREASE - 6     DECREASE - 3     SAME - 7
    
    e) Turkey
    INCREASE - 1     DECREASE - 4     SAME - 9
    
    f) Kuwait
    INCREASE - 1     DECREASE - 3     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; EFG-Hermes; 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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