Valuations, oil prices are factors; Emaar Malls IPO sparks interest in UAE; more cautious on Middle East equities, fixed income in general; suggests allocations to cash rising before US Fed tightening
Reuters
Dubai
Middle East funds have become less bullish about Saudi Arabian stocks after the market surged in recent months, while the flotation of the malls unit of Emaar Properties is reviving interest in the UAE.
Seven percent of respondents in the latest monthly Reuters survey of 15 leading regional investment managers expect to raise allocations to Saudi Arabian equities in the next three months, while 20% expect to reduce them.
That is a big change from the August survey, which found 47% expecting to raise their Saudi equity allocations and only 7% to reduce them.
Bullishness towards Saudi Arabia peaked in the July survey, days after the stock market regulator announced it would open the market to direct foreign investment early next year.
Since then, sentiment towards the market has been declining, partly because sharp gains in stock prices have left many of them looking fully valued for now. The main index is up 10% since the announcement but has pulled back from its peaks in the past week.
A sharp drop in oil prices over the past several weeks is not nearly steep enough to cause financial problems for Saudi Arabia, but it may also have dampened sentiment towards the market. Brent crude oil, now at just above $95 a barrel, is down almost $20 from June’s peak.
The survey was conducted over the past 10 days by Trading Middle East, a Reuters forum for market professionals.
Meanwhile, 40% of fund managers now expect to raise their UAE equity allocations, while only 7% intend to reduce them. That compared with ratios of 27% and 7% in the August survey.
The $1.58bn initial public offer of Emaar Malls Group, which concluded last week, attracted massive demand from investors, and some fund managers think the listing will help to ignite a fresh rise of the market.
“The return of activity in the IPO market in the UAE with Emaar Malls Group will help attract liquidity back to the market after the slowdown of the summer months,” said Mohammed Ali Yasin, managing director at NBAD Securities. “This will increase the trading volumes significantly in the ADX and DFM, and together with the Q3 announcements for the listed companies, will see new positive momentum come back to the UAE.”
However, the survey showed a more cautious mood towards Middle East equities and fixed income in general, apparently the result of some funds boosting allocations to cash amid expectations for US interest rate hikes next year.
The rate hikes will start to change the ultra-loose monetary conditions that have buoyed global markets in the past few years, and are expected to be imitated quickly by Gulf central banks because of their currency pegs to the US dollar.
Sentiment towards Middle East stocks is now equally split after being heavily in favour of stocks in the August survey. No fund now expects to raise its Middle East fixed income allocation and 13% intend to reduce them, compared with an equal split in the last survey.
Institutions taking part in the survey are Abu Dhabi Fund for Development; Ahli Bank Oman; Al Rayan Investment; Al Mal Capital; Amwal Qatar; Arqaam Capital; Emirates NBD; Global Investment House; Mashreq Bank; Naeem Financial Investments; National Bank of Abu Dhabi; NBK Capital; Rasmala Investment Bank; Schroders Middle East; Securities and Investment Co of Bahrain.
