Mideast funds bullish on Kingdom, bearish on UAE

01/08/2014 10:06 AST

Middle East funds are heavily bullish toward Saudi Arabian stocks after news the market will open to direct foreign investment, while they are bearish on the United Arab Emirates because of concern about high valuations.

The latest Reuters survey of 15 leading investment managers, conducted over the past 10 days, showed two-thirds expected to raise their equity allocations to Saudi Arabia in the next three months, up from 40 percent in the last survey a month ago. The ratio of bullish managers was the highest since September 2013.

“The opening of the Saudi market is definitely a huge positive and should attract a lot of active money,” said Naveed Ahmed, senior portfolio manager at Securities and Investment Co. of Bahrain.

“The index has breached the psychological barrier of 10,000 points and can extend gains over the next few weeks and months. The medium- to long-term prospects for the Saudi market look very good.”

The Saudi market regulator announced on Tuesday last week that it planned to open the bourse, the Arab world’s biggest with a capitalization of about $550 billion, to direct investment by foreign institutions in the first half of next year. Currently, foreigners can only invest through swaps and exchange-trade funds.

To avoid destabilizing the market, the regulator is expected to grant investment licenses only gradually, so a sudden flood of foreign money is unlikely. Saudi Arabia may not be included in a major MSCI equity index before 2017 at the earliest.

But many fund managers think the market-opening could be a game-changer for foreign investors in the Gulf, offering them unprecedented liquidity and diversity.

“With an extensive representation of sectors, the Saudi stock exchange trades about $2 billion per day, which is significantly larger than any other single Gulf Cooperation Council market,” said Yong Wei Lee, head of regional equities at Dubai’s Emirates NBD.

Bader Ghanim Al-Ghanim, head of GCC asset management at Kuwait’s Global Investment House, said not only the market-opening plan but strong second-quarter earnings announcements from Saudi companies made the market attractive at present.

A range of companies including Saudi Arabian Mining Co. (Maaden), Saudi Cement 3030.SE and food producer Savola Group 2050.SE have reported quarterly earnings above analysts’ forecasts in the last couple of weeks.

The survey was conducted by Trading Middle East, a Reuters forum for market professionals.

Arab News