Middle East fund managers expect to pump more money into Saudi Arabian equities in coming months but they are on balance negative towards several other major Gulf bourses, a Reuters poll showed on Wednesday. The monthly poll of 13 leading regional fund managers, conducted in the past week, found 69 percent expect to raise allocations to Saudi Arabia within a regional equities portfolio over the next three months, and none to cut allocations.
That is the most positive balance towards Saudi Arabia since September 2013, the month in which the poll was launched, when the ratio was 75 percent to zero. In last month's poll, 69 percent expected to raise Saudi allocations and 8 percent to cut them. "In the first quarter, the rotation into Saudi Arabia could further strengthen," said Vrajesh Bhandari, portfolio manager at Dubai's Al Mal Capital. He and other fund managers cited expectations that Saudi Arabia will join emerging market equity indexes, which would attract billions of dollars of fresh money to the country.
MSCI will announce its decision this June on whether to label Saudi Arabia an emerging market, while FTSE will make a decision in March. Actual inclusion in the indexes would only occur months later - in May 2019, in the case of MSCI - but positive decisions could buoy the market immediately. Many funds expect stronger economic growth in Saudi Arabia this year because of higher state spending, while the planned listing of national oil giant Saudi Aramco in Riyadh during the second half of 2018 is likely to attract money.
The poll confirmed that Saudi Arabia's crackdown on corruption, which was launched in November and detained well over 100 people at one stage, has done little to hurt the interest of portfolio investors in the country, even as it shook the political and business elite. "The last few months were turbulent but people are looking towards catalysts such as MSCI and FTSE inclusion, and the Aramco IPO," said another fund manager, adding that spending plans in the government's 2018 budget were positive.
Bhandari said of Al Mal's Saudi strategy: "We are more bullish on banks and insurance, but believe consumer discretionary and industrials could struggle." Despite stronger economic growth this year, Saudi consumer demand may be restrained by this month's hike in gasoline prices and the introduction of a 5 percent value-added tax.
Fund managers are much less positive on stock markets in the United Arab Emirates, where 8 percent expect to raise equity allocations and 38 percent to reduce them - the most negative ratio for the UAE since July 2014. In last month's poll, the balance was slightly positive. But fund managers have been disappointed by low trading volumes in recent months, while slumping real estate prices in Dubai and Abu Dhabi have weighed on markets.
Some managers see the risk of outflows of money to Saudi Arabia this year because of the Aramco listing, which could further hurt UAE trading volumes. Managers have also turned slightly negative on balance towards Qatari equities, with 15 percent expecting to raise allocations and 23 percent expecting to reduce them.
Qatar's stock market rose sharply in the past two months in anticipation of annual dividend announcements, and as it became clear that an embargo imposed on Doha by other Arab states last June was doing less damage to the economy than feared. But the market has now almost regained its pre-embargo level. Twenty-three percent of funds expect to increase Kuwaiti equity allocations and 8 percent to reduce them. Kuwait will enter FTSE's emerging market index in September, and some managers are betting that MSCI will begin to consider this June a possible upgrade of Kuwait to that status.
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