DUBAI: Some of the $80bn in managed funds in the Gulf Arab region, mostly focused on larger markets, will disperse to smaller regional bourses and increasingly head to southeast Asia, asset managers said on Tuesday.

Asset managers speaking at the Meed IPO and Asset Management conference in Dubai said that after a steep correction throughout regional bourses earlier this month investors will seek to diversify away from the Gulf, boosting funds heading to smaller markets such as Lebanon, Egypt, or Morocco.

Retail investors armed with cash often loaned by banks have been stung by a downturn in regional markets which shaved 30% off the capitalisation of the Saudi bourse and knocked 18% off Dubai’s index during three days in mid-March.

“Investors realised that investing in one country can be difficult and they will be looking at multiple markets now,” said Hashem Montasser, head of regional asset management at Egypt-based investment bank EFG-Hermes. “Investors realised they had been losing the benefits of diversification.”

Fund managers are predicting a migration away from retail investment back toward funds, predicting that the amount of Gulf cash invested in funds could surge around 150% to $200bn within five years.

Haissam Arabi, managing director of Dubai-based Shuaa Capital, said compared to market capitalisation of more than $1tn on Gulf bourses, the $80bn in managed funds is far smaller than ratios for other emerging countries.

He said a retreat from retail investing in the Gulf will fuel growth in managed funds, 80% of which had been focused in Kuwait, Saudi Arabia, and the UAE.

Fund managers said the majority of assets under management will remain in the large Gulf markets, although an increasing percentage will siphon off to North Africa and Southeast Asia.

Money won’t head as much to the US, where investors are worried about the political risk of their investment. They said the furore over Dubai Ports’ acquisitions in the US, which the state-owned company sold after Congress raised national security concerns, would dampen the flow of Arab money to the US.

“The Dubai Ports issue is a big discouragement and a reminder of the obstacles to investment in the US,” Arabi said.

Montasser said Gulf money would begin to flow more to Morocco, Lebanon, and Egypt, where he said markets are performing well this year despite the correction in the Gulf.

“We expect neglected regional markets to experience a rally,” said Mohannad Aama, managing director of Beam Capital Management. “It is fair to assume that smaller markets in North Africa might enjoy a growth spurt.”

Arabi said India, China, and Pakistan would also see increasing flows of Gulf petrodollars.

Fund managers also said investors would seek diversified products to reduce their exposure to regional equity markets.

“You will have a diversification of products that were predominantly invested in equity markets,” said Montasser. “You’re going to see product diversification in funds, fixed income products, and structured products with capital guarantees.” – Reuters