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Middle East funds turn negative as oil drops again
2015年7月30日 / 凌晨5点03分 / 2 年前

Middle East funds turn negative as oil drops again

* Bears outweigh bulls for both equities and fixed income
    * Oil prices back at early February levels
    * Saudi Arabia seen as most expensive market in region
    * UAE attracts bets linked to Iran
    * Egypt, a cheaply valued oil importer, also favoured

    By Olzhas Auyezov
    DUBAI, July 30 (Reuters) - Middle East fund managers have on
balance turned negative towards the region and especially its
biggest equity market, Saudi Arabia, after oil prices gave up
most of the gains made in the last six months, a monthly Reuters
survey shows.
    The survey of 15 leading investment firms, conducted over
the past three days, shows only 13 percent expect to raise their
equity allocations to the Middle East in the next three months,
while 20 percent expect to reduce them.
    Last month, fund managers were neutral on balance towards
regional equities, with 7 percent intending to increase equity
allocations and the same number expecting to cut them.
    Oil, one of the main factors watched by investors in the
region, has been falling sharply on worries about oversupply and
a meltdown in Chinese equities. Brent crude hit a
session trough of $52.28 on Tuesday, its lowest since Feb. 2.
    "One of the fatal factors determining the flow of
investments in the region is oil; we are talking about an oil
price less than 50 percent of where it was a year earlier," said
Tamer Mostafa, head of asset management at Union National Bank
in the United Arab Emirates.
    "Definitely that factor had a heavyweight effect on most 
GCC (Gulf Cooperation Council) countries as well as some
countries in North Africa."
    Heavy state spending in GCC countries has kept economic
growth in the region strong. But as oil's slump has continued,
governments have started to cut back on some projects and reduce
consumer subsidies - the UAE deregulated domestic fuel prices
this week - and that has affected investor sentiment. 
    "Going forward, investors should adapt their strategies
according to the current oil price levels and focus on
fundamentals and companies' growth plans rather than applying a
top-down approach across the board," Mostafa said.
    <----------------------------------------------------------
    Graphic of survey results:   link.reuters.com/xyk35w
    ---------------------------------------------------------->
    
    SAUDI
    Fund managers are especially bearish on Saudi Arabia: 40
percent expect to cut equity allocations there in the next three
months and just 7 percent to increase them. This compares with
27 percent intending to decrease allocations and 13 percent to
increase them in June.
    Petrochemicals are the second-biggest sector by market
capitalisation on the kingdom's stock market and most of those
companies posted sharp profit declines in the second quarter as
cheaper oil dragged down prices of oil products and chemicals.
    While the Saudi government has continued to spend heavily
this year, many economists view that as unsustainable in the
long run and expect some retrenchment next year, which could
slow economic growth.
    Also, Saudi Arabia is the most expensive market in the
region measured by price-to-earnings ratios. The main Saudi
index trades at 16 times projected 2015 earnings,
roughly the same as the Dow Jones Industrial Average and
FTSE 100 ; other Gulf bourses are between 11 and 13.
    One reason for the high valuations was local investors'
expectations for large foreign fund inflows when the market
opened to direct foreign investment by qualified institutions in
mid-June.
    But in the last six weeks, inflows have been tiny, partly
because of strict regulations. One foreign institution, HSBC,
obtained a licence to invest but it is not clear whether it has
been joined by any other institution; the Capital Market
Authority has not announced any licence awards.
    According to Reuters calculations based on stock exchange
data, direct foreign fund inflows so far have only amounted to
about $3.3 million - a drop in the ocean for a market with a
capitalisation of $537 billion.
    
    UAE, EGYPT
    Fund managers are relatively positive on the United Arab
Emirates, which looks best positioned to act as a hub for trade
with and investment in Iran if sanctions against Tehran are
lifted after this month's international agreement on the Iranian
nuclear programme.
    Also, Dubai is less exposed to oil than other Gulf markets
because of its diversified economy, although it is not insulated
from an indirect impact such as lower spending by tourists from
neighbouring countries.
    Forty percent of managers expect to increase equity
allocations to the UAE, up from 33 percent a month ago, and only
7 percent expect to cut them, the same as in the previous
survey.
    "We see good value in the UAE and it could benefit from
Iran," said Bader Ghanim al-Ghanim, executive vice president and
head of regional asset management at Kuwait's Global Investment
House.
    Another favourite of fund managers is Egypt which, trading
at 11 times 2015 earnings, is one of the cheapest markets in the
Middle East, having dropped by almost a quarter between its peak
in February and a trough in early July.
    Twenty-seven percent of respondents expect to increase their
Egyptian equity allocations and none to cut them. Last month,
the same number of respondents said they planned to increase
allocations and 7 percent saw them lower.
    Egypt is a net importer of energy and cheaper oil has helped
the Cairo government manage its budget deficit by reducing
costly fuel subsidies.
    Gulf bond spreads have continued to perform strongly in
recent weeks. Nevertheless, funds are on balance negative
towards Middle East fixed income as the start of U.S. interest
rate hikes looms, the survey showed.
    None of the respondents expects to raise allocations to
fixed income and 20 percent expect to cut them, compared to 7
percent positive and none negative in the last survey.    
     
    SURVEY RESULTS
    
    1) Do you expect to increase/decrease/keep the same your
overall equity allocation to the Middle East in the next three
months?                                
    INCREASE - 2   DECREASE - 3   SAME - 10                     
                          
    2) Do you expect to increase/decrease/keep the same your
overall fixed income allocation to the Middle East in the next
three months?                                
    
    INCREASE - 0   DECREASE - 3   SAME - 12                
    3) Do you expect to increase/decrease/keep the same your
equity allocations to the following countries in the next three
months?                                                         
      
    a) United Arab Emirates
    
       INCREASE - 6   DECREASE - 1   SAME - 8
    
    b) Qatar                                
    
    INCREASE - 1   DECREASE - 4   SAME - 10
    
    c) Saudi Arabia                                
    INCREASE - 1   DECREASE - 6   SAME - 8
    
    d) Egypt
                                    
    INCREASE - 4   DECREASE - 0   SAME - 11
    
    e) Turkey
                                    
    INCREASE - 0   DECREASE - 2   SAME - 13                
    f) Kuwait                                
    
    INCREASE - 1   DECREASE - 2   SAME - 12
    
    NOTE - Institutions taking part in the survey are: Ahli Bank
Oman; Al Rayan Investment LLC; Al Mal Capital; Amwal Qatar;
Arqaam Capital; Emirates NBD; Global Investment House; Invest
AD; National Bank of Abu Dhabi; NBK Capital; Rasmala Investment
Bank; Shuaa Asset Management; Schroders Middle East; Securities
and Investment Co of Bahrain; Union National Bank.

 (Editing by Andrew Torchia)

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