15.03.2011

Following political turmoil in the region, WIOF Middle East Performance Fund investment advisor Kuwait Financial Centre 'Markaz' explains the impact of the events in the MENA region on stock markets.


GCC stock markets have been extremely volatile over the last two weeks (from February 26 to March 10). Markets which had seen aggressive selling on the back of growing nerves about political tensions in the region in the first week experienced a ‘V’ shaped recovery the following week. In Saudi Arabia, panic selling pushed the S&P Saudi Index down a considerable 15% in the week ending March 2. But it made a quite amazing recovery to rise 15% the following week. Continued protests in neighbouring countries such as Bahrain, Yemen, and Oman had made investors extremely worried about the possibility of similar events in Saudi Arabia. As the largest economy in the Middle East, the most populated GCC country and leading producer of crude oil, any kind of anti-government protests spilling over to Saudi Arabia is seen as having a potential negative impact on geo-political developments for not just Saudi Arabia but the wider GCC region as well. It is this concern that is believed to have triggered the panic selling the week before in markets like Saudi Arabia, Qatar and Kuwait. There was a meeting of GCC foreign ministers last week and the GCC council declared it would show solidarity in providing aid and support to Bahrain and Oman. Also, the premier of Oman, Sultan Qaboos bin Said, reacted last week to some of the protestors’ demands and has reshuffled some important ministerial positions in the government in a measure of political reform. In Bahrain, anti-government protestors are still looking forward to dialogue with the government so they can put forward issues for discussion and resolve a conflict which has now lasted one month.

In Kuwait, anti-government protestors had set March 8 as the date to stage street protests. But the reasons cited for staging the protests do not seem to be new and include past issues which have already been debated in parliament. More than political tensions, investors seem worried over the outcome of the ZAIN-Etisalat merger deal which has become mired in uncertainty after the Feb 28 deadline for a final acquisition decision from Etisalat passed. As for any situations developing in Saudi Arabia, the Saudi government has made its intentions very clear and said that any kind of anti-government street protests will not be tolerated and has issued reminders that public demonstrations are illegal in the country. At the end of February some economic reform measures were announced by Saudi ruler King Abdullah with the main objective being to mitigate some of the oft-cited concerns in Saudi Arabia. Among the main highlights were wage increases to combat inflation, financial support for education and measures to increase housing loans. These socio-economic measures will cost the state an estimated substantial sum of around USD35bn (The Saudi government budgeted expenditure for 2011 is USD155bn). The move is seen as a significant initiative. In addition to these measures, there has been an injection of funds into listed stocks on the stock market by state owned institutions to provide buying support. With a view to growing domestic housing needs and complimenting these new measures, the Saudi mortgage law which has been pending for 5-7 years may also be put into effect soon. The strong surge in crude oil prices (WTI) beyond USD100 a barrel last week has been a factor in boosting buying sentiment on the Saudi stock market. The strong recovery in the Saudi stock market last week ahead of the scheduled street protests on March 11 does seem to hint that investors do not believe these protests are a major politically disturbing event at present. The restoration of investor confidence in the market can be seen in the 15% rise on the S&P Saudi Index last week and several leading stocks in major sectors like petchems, banks and telecoms almost wiped off their severe share price losses of the previous week. Though there is some relief in stock prices gaining strength last week in Saudi and other GCC
markets, the political situation still seems uncertain and amidst the current high volatility, the Fund is keeping above-average cash holdings of 12-14%.

In Egypt, the stock market has been closed for more than a month. The Fund has scaled down its Egypt exposure to 5% since the political crisis started in the country at the end of January.

In terms of WIOF Middle East Performance Fund geographical exposures, there are three key strategic GCC country exposures – Saudi Arabia, Kuwait and Qatar. As a near-term asset allocation strategy, these three markets will collectively account for the bulk of the Fund’s exposure and are targeted at around 75-80 %, Saudi Arabia being the single largest country exposure with a target of around 43-47%. At the end of February, the Fund’s NAV was down 11.8% YTD.

IMPORTANT NOTE: This report has been prepared for information only, and it does not represent an offer to purchase or subscribe to shares. World Investment Opportunities Funds (“WIOF”) is registered on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 20th December 2002 on collective investment undertakings as an open-ended investment company. WIOF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment.Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. WIOF prospectus is available and may be obtained through www.1cornhill.com. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser / legal adviser / tax adviser and refer to all relevant documents relating to the WIOF and its particular Sub-fund(s), such as the latest annual report and prospectus that specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser / legal adviser / tax adviser, they should consider whether the WIOF is a suitable investment for them.