Fund managers in the Middle East remain upbeat towards Saudi Arabia’s equity market before Morgan Stanley Capital International’s (MSCI) decision on upgrading the country to an Emerging Market in May. FTSE will also be making their decision in March.
In a poll conducted by Reuters on Wednesday, thirteen fund managers were asked about their sentiments and decisions on whether they wish to increase, decrease or leave unchanged their allocations in equity markets, fixed income markets and individual countries in the Middle East. The institutions that took part in the survey were: Al Mal Capital; Al Rayan Investment LLC; Amwal Qatar; Arqaam Capital; Emirates NBD; Global Investment House; Invest AD; FAB Securities; NBK Capital; Rasmala Investment Bank; Schroders Middle East; The National Investor; Waha Capital.
The first question looked at equity allocations:
1) Do you expect to increase/decrease/keep the same your overall equity allocations to the Middle East in the next three months?A)Increase – 3Decrease -1Keep the same – 9
While the majority (nine) of managers do not see themselves altering their overall equity allocations to the Middle East in the short-term, three have signalled their ambition to increase their weightings, presumably in anticipation of Saudi Arabia’s potential upgrade as well as Middle Eastern markets stablising after the recent market blip.
Similarly, the second question asks about fixed interest allocations:
2) Do you expect to increase/decrease/keep the same your overall fixed income allocations to the Middle East in the next three months?A)Increase – 3Decrease -1Keep the same – 9
This question yielded similar results to the one on equities.
The final question was broken down into individual country allocations, providing us with the opportunity to analyse where exactly these managers are considering investing:
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 – 3; Decrease – 4; Keep the same – 6
- b) Qatar
Increase – 1; Decrease – 2; Keep the same – 10
- c) Saudi Arabia
Increase – 9; Decrease – 0; Keep the same – 4
- d) Egypt
Increase – 4; Decrease – 0; Keep the same – 9
- e) Turkey
Increase – 0; Decrease – 1; Keep the same – 12
- f) Kuwait
Increase – 5; Decrease – 1 ; Keep the same – 7
Saudi Arabia was the recipient of the most positive results from the poll after nine fund managers stated that they are looking to increase weightings of equities from The Kingdom in their funds in the next three months. They are not the only ones who are contemplating this move as Nomura, Japanese asset management company, also expressed a keen interest in increasing flows into Saudi Arabia, particularly being attracted to the potential upgrade and the Saudi Aramco listing. It is also worth noting that none of the fund manager polled are considering reducing their exposure over the next quarter.
While sentiment towards Saudi Arabia is high, there are a few hurdles that investors have acknowledged that officials in the country will need to address, such as investment transparency and developing robust governance.
Egypt and Kuwait were also viewed in a positive light in the poll, the former driven by optimistic election expectations and the latter due to an improved and balanced foreign policy with many nations (such as America, Iraq and various countries in Europe) being the catalyst of investors to start looking towards Kuwait.
UAE, Qatar and Turkey did not fend well in the poll. According to Gulf News, Mohammad Ali Yasin, chief executive of FAB Securities, said that UAE’s under-performance can be attributed to lacklustre movements in price and volume since the beginning of 2018.