Middle East Funds Turn Negative Stocks
$OIL
Low Crude Oil prices, instability in the global economy and the prospect of US Fed monetary tightening hurting sentiment
Middle East fund managers have on balance turned negative towards stocks in the region because of low Crude Oil prices, instability in the global economy and the prospect of US Fed monetary tightening, a monthly survey shows.
The survey of 14 leading investment firms, conducted over the past week, shows 21% expect to cut their regional equity allocations in the next 3 months, and 7% to raise them.
That is a big shift from last month’s survey, when 33% said they expected to raise stock allocations and 7% anticipated cutting them.
This month’s survey is the most negative towards stocks since May this year, when Gulf stock markets were peaking for Y 2015.
Although growth in Gulf Arab economies has held up well this year, governments are expected to react to low Crude Oil prices by tightening fiscal policy next year, with the possible exception of Qatar.
This may create a drag on markets, but the extent of that drag is not yet known because governments have not yet detailed their austerity measures.
Meanwhile, the strength of the USD, to which Gulf currencies are closely linked, and the prospect of US interest rate hikes starting late this year, have created the prospect of monetary tightening in the Gulf, which could be magnified as some governments borrow to cover budget deficits.
That means fixed income is no safe haven for fund managers, 14% expect to reduce their allocations in that asset class and 7% to increase them. So, more money may be kept in cash.
“The widespread uncertainty in virtually every asset class is likely to continue as investors anticipate changes in monetary policy, review the unpredictable economic data and grapple with complex geopolitical issues,” said V.Gowribalan, head of asset management at Ahli Bank in Oman.
Saudi Arabia in particular may be vulnerable to a slowdown, as the Kingdom considers a range of steps, including domestic fuel price rises and cuts in state investment spending to narrow a budget deficit that will exceed $100-B this year.
The market is too big and liquid to ignore, so many managers said they would continue buying stocks selectively there. But a substantial number foresee reducing their overall exposure; 36% expect to cut their Saudi stock allocations in the next 3 months and the same number to raise them.
That compares with 33% expecting to raise Saudi stock allocations and 20% to cut them in last month’s survey.
“Whilst valuations in Saudi Arabia have fallen over a period of several months, we remain cautious and extremely selective,” said Sachin Mohindra, portfolio manager at Abu Dhabi’s Invest AD.
The latest survey once again shows United Arab Emirates (UAE) markets as heavily favored over other regional exchanges to ride out an era of cheap Crude Oil with relatively little damage.
50% of managers expect to lift UAE stock allocations in the next 3 months and 7% to decrease them, compared to 53%, and Zero in the last survey.
“We like the fact that the UAE is the most diversified economy in the region having only 35% of its Crude Oil related to GDP, a budget situation which is under control and stock market valuations which may not be attractive yet but are at appealing,” said Sebastien Henin, head of asset management at The National Investor in Abu Dhabi.
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Paul Ebeling
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