Middle East funds have become more bullish towards equities in the region but are cautious towards Saudi Arabia and Egypt after spectacular rebounds in those stock markets, a monthly Reuters poll found. The poll of 14 leading fund managers, conducted over the last week, found 43 percent expect to increase their allocation to Middle East equities over the next three months and 7 percent to reduce them.
This is the most bullish balance towards equities since January, and compares to ratios of 14 percent and 7 percent in last month's survey. "The next three months coincide with the annual results of the public companies, and more importantly their dividend distributions for 2016 profits," said Mohammed Ali Yassin, head of asset management at Abu Dhabi's NBAD Securities.
"This will prove to be a positive catalyst for those companies whose cash dividend distribution could yield 4 percent or more." The United Arab Emirates is the most favoured country among equity investors, with 57 percent of participants saying they expect to raise allocations there while only 7 percent expect to reduce them. That compares with ratios of 29 percent and 7 percent last month.
"The UAE market is getting attractive in terms of valuations, so it seems a good time to increase allocations. The only thing missing is a catalyst news item that would drive prices up," said Talal Samhouri, head of asset management at Qatar's Amwal. Qatari shares, which in last month's survey drew the most bearish balance since the survey was launched in September 2013, are back in some managers' good graces, with 29 percent saying they expect to increase allocations there and 21 percent anticipating reductions. Last month, only 7 percent said they would increase and 50 percent said they would cut back.
"Historically, Qatari companies have paid healthy dividends with the entire distribution made during Q1 2017. Combined with the second half of Qatar's inclusion in the FTSE emerging market index in March 2017, this provides opportunities in a number of stocks," said Akber Khan, head of asset management at Doha-based Al Rayan Investment. Fund managers are cautious, however, on two equity markets that have soared in the last several weeks.
Saudi Arabia's index has jumped over 25 percent since the government's $17.5 billion international bond issue in late October eased fears about its ability to cope with an era of cheap oil, and helped it begin making delayed payments to settle its debts to private companies. Managers have turned less bullish towards Saudi equities, however; 29 percent said they expect to increase allocations there and 21 percent to reduce them, compared to ratios of 36 percent and 14 percent last month.
"Saudi market valuations have come up in the past two weeks so much that any negative news coming from the potential Opec deal (to cut oil output) would mean a major pull-back for the stock market," said Samhouri at Amwal. Similarly, Egypt's index jumped 37 percent after the November 3 float of the Egyptian pound, but the rally has begun to make valuations less attractive, particularly given continued headwinds for the Egyptian economy.
Twenty-one percent of managers now expect to increase allocations to Egyptian equities and 29 percent to reduce them, compared to 21 percent and 43 percent last month. The survey shows, however, that Kuwait's stock market - long neglected by Gulf investors because of poor liquidity - is gaining popularity, with managers citing attractive valuations after this year's underperformance.
Twenty-nine percent expect to raise allocations there and only 7 percent to reduce them - the most bullish balance for Kuwait since the Reuters poll was launched in September 2013. "Some stocks are offering good value now after having corrected," said Vishal Gupta, portfolio manager at Dubai-based Rasmala.
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