Mideast funds become less positive on regional equities

The latest poll of 13 leading fund managers, conducted in the past week, showed 15 per cent now expect to cut their allocations to regional equities in the next three months while 8 per cent expect to raise them.

DUBAI: Middle East funds have become less positive toward regional equities, particularly in Egypt, because of concern about instability in emerging markets globally, a monthly Reuters poll showed on Sunday.

The latest poll of 13 leading fund managers, conducted in the past week, showed 15 per cent now expect to cut their allocations to regional equities in the next three months while 8 per cent expect to raise them.

That is the most negative balance since May 2016. In the previous survey, taken a month ago, 38 per cent expected to raise allocations and none expected to implement reductions.

Over the past couple of months, currency weakness in places such as Turkey, tumbling bond prices in countries including Lebanon and trade tensions involving the United States and China have cast a pall over emerging markets generally.

A rebound in oil prices, with Brent crude above $80 a barrel, and countries’ currency pegs to the US dollar are expected to insulate Gulf markets from the worst of the global turmoil.

Saudi Arabia’s stock index has been flat in the past month and Kuwait’s blue-chip benchmark has risen 1.8 per cent while MSCI’s emerging market index has slipped by 0.8 per cent.

On balance, managers are more positive towards both Saudi Arabia and Kuwait because of expected fund inflows as those markets join global equity indexes in coming months. They are also positive on the United Arab Emirates because of cheap valuations.

Nevertheless, the grim mood in global emerging markets is making funds more cautious in the Gulf. Furthermore, the region’s economic growth remains modest in the wake of austerity measures to cut state budget deficits.

“Although oil prices have almost doubled since summer last year, there has been almost no growth in project spending across the region,” said Akber Khan, head of asset management at Al Rayan Investment in Doha.

“In Saudi and the United Arab Emirates in particular, the jumps in the cost of living and corporate operating costs have hurt at a time of weak demand.”

Meanwhile, managers have turned negative on equities in Egypt, which is not protected by a currency peg, with 31 per cent now expecting to cut allocations to Egypt and 8 per cent to raise them — the most negative balance since February 2017. “Following the steady Egyptian pound for almost two years, we expect mild weakness in the currency as higher inflation and a fiscal deficit remain,” said Bader Ghanim Al Ghanim, head of regional asset management at Global Investment House in Kuwait.

He said that foreign investors’ demand for Egyptian currency bonds had dropped, suggesting there could be capital outflows from the country.

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