01.06.2011

 

Sajid Surti

Portfolio Manager

Kuwait Financial Centre 'Markaz'


 

While many investors may think of opportunities in the Middle East as solely to be found in the fuel-rich economies of Saudi Arabia, Kuwait and Qatar, investment horizons in the region are much wider. Instead of being confined to just a few states there are opportunities on offer across the region in growing and developing markets not just on the Arabian peninsula but in North Africa as well. The WIOF Middle East Performance Fund spreads investment throughout the Middle East region and gives investors the chance to participate in a fund driven by crude oil-based economies but also offering extended investment opportunities throughout the Middle East region.

 

OIL AND GAS PRIME DRIVERS

The Middle East remains the world’s oil and gas powerhouse. It holds almost 40% of the world’s oil reserves and more than a quarter of its natural gas. Both commodities remain the prime drivers of the region’s economies.

 

Crude Oil Reserves - MENA Region

 

Natural Gas Reserves - MENA Region


BEYOND OIL

But while crude oil revenues are a critical driver of economic growth within the region and provide obvious investment potential, Middle East countries have been aware of a need to look to ensure the long-term future of their economies and recent crude oil surpluses over the past few years have been invested into infrastructure projects as active diversification strategies into sectors such as construction have attracted substantial investment. Such moves will help ensure economies are diversified for sustainable growth into the future.

NON-HYDROCARBON GDP

 

FUNDAMENTALS REMAIN STRONG

The region has been very much in the news in the first few months of the year. Political uprisings and unrest have been a feature to a greater or lesser extent in many Middle Eastern states. But while it would be impossible to ignore the effects these events have had on some parts of the region, most notably Egypt, the region’s economic and investment fundamentals remain strong:

 

  • The overall macroeconomic outlook coupled with strong crude oil prices and robust government expenditures seem likely to support a healthy environment for MENA equities
  • Liquidity flow to the region is expected to improve. Qatar and UAE are leading candidates to become the first GCC markets to be included in the MSCI Emerging Market Index
  • Qatar winning the bid to host 2022 FIFA World Cup can shore up greater visibility for the region
  • Banks and petrochemicals are well placed to deliver healthy earnings growth in 2011
  • Forecasts for steady growth in the global economy this year and a consequent positive outlook on global commodity prices strengthens the region’s economic growth fundamentals
  • Forecasts for valuations for growth-oriented MENA region companies are still relatively attractive. The highest earnings growth prospects for 2011 are forecast for Saudi Arabia and Qatar.
  • Dividend yields for a diversified MENA portfolio have ranged between 3-5% in recent years and that is likely to be sustained for the dividend payout season into Q12011.

 

OUTLOOK

Since the beginning of the year, the region has seen unprecedented political unrest which spread from Tunisia to Egypt, Oman, Bahrain, Libya and Syria. However, despite the upheaval the long-term prospects for the region remain good.  In Egypt, amid heavy protests, the existing ruling party headed by Hosni Mubarak was thrown out of power as the military took charge of the country’s affairs. The country is planning parliamentary elections in September this year, slowly returning to democracy. The protests and their aftermath severely affected the economy of Egypt in the short term. However, we believe the long term prospects for Egypt remain bright as the economy slowly gets back on track. The situation in Bahrain and Oman is stable and economies are functioning normally. Governments in the region have started announcing additional spending and reform measures and Saudi Arabia’s rulers have pledged economic spending of close to USD110bn. Equity markets in the region, such as in Qatar and Saudi Arabia, have rebounded strongly from lows at the height of the political crisis and have now wiped out almost all of the losses for the year. Meanwhile, rising oil prices fuelled by the crisis in Libya are helping the Gulf Co-operative Council (GCC) region which in turn is able to support more spending for the region’s social and economic development. A stable political situation in GCC and economies benefiting from rising crude oil prices, ensures the theme of long-term investment remains intact.

 

INVESTMENT ADVISOR

The Fund’s Investment Advisor is the Kuwait Financial Centre 'Markaz' (Markaz). Established in 1974, it has since become one of the leading asset management and investment banking institutions in the Arab region. The company was listed on the Kuwait Stock Exchange (KSE) in 1997 and is rated BBB+ by Emerging Market Rating Agency Capital Intelligence. Markaz offers fully-fledged services in asset management and investment banking. Tested through challenging conditions on local, GCC and international stock markets for many years now, Markaz Asset Management activity has consistently outperformed the relevant benchmarks on its equity funds and managed portfolios.

 

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.