Funds' confidence in UAE equities returning, bullish on Kuwait

Business Tuesday 31/July/2018 13:32 PM
By: Times News Service
Funds' confidence in UAE equities returning, bullish on Kuwait

Dubai: Fund managers' confidence in United Arab Emirates stock markets is returning after being damaged by the planned liquidation of Dubai-based private equity firm Abraaj, while funds remain very positive on Kuwait, a monthly Reuters poll showed on Tuesday.
Forty-six per cent of funds now expect to raise allocations to UAE equities in the next three months and only 8 per cent to reduce them, according to the poll of 13 leading Middle East fund managers, conducted in the past week.
That is a significant shift from the last poll in June, when 15 per cent of funds expected to lift UAE allocations and the same proportion to cut them -- a result that was a major downgrade from the May poll.
Dubai-based Abraaj filed for provisional liquidation in the Cayman Islands in June after a dispute with international investors over how it used their money in a $1 billion healthcare fund.
Abraaj denied it misused the funds, but Dubai's stock index fell nearly 10 per cent after the filing as investors worried about the potential financial impact on listed firms.
In July, however, those fears party eased as about a dozen companies in the UAE and around the region disclosed their exposure to Abraaj, reducing uncertainty and encouraging fund managers once again to focus on valuations for UAE blue chips.
Rami Jamal, portfolio manager at Amwal in Qatar, said some valuations in the UAE were now extremely attractive and second-quarter earnings in the banking sector had been positive.
"We expect the real-estate sector overhang on the general market to subside towards the end of the third quarter," he said.
The latest poll also showed funds remaining very positive towards Kuwait, with 62 per cent expecting to raise equity allocations there and none to reduce them, the same balance as in the previous poll.
The Kuwaiti blue-chip index surged about 9 per cent in July after MSCI decided to begin considering a possible upgrade of Kuwait to emerging market status.
In addition, FTSE Russell has said it will move Kuwait to secondary emerging market status in two stages this September and December, which is expected to attract into the market about $800 million of passive funds -- money closely benchmarked to emerging market indexes.
With Kuwaiti blue chips now trading near 17 times trailing earnings, they are not cheap by international standards; MSCI's emerging market index is at about 14 times. But they are still slightly cheaper than Saudi blue chips, which are near 18 times.
Nevertheless, interest in Saudi Arabia is being sustained by expectations for massive inflows of passive funds into the market next year, when it will be upgraded by both MSCI and FTSE Russell. Thirty-one percent of managers now expect to raise equity allocations to Saudi Arabia and none to cut them.
Managers are split on Middle Eastern fixed income, with 23 per cent expecting to raise allocations and 15 per cent intending to reduce them.
Jamal said he believed the market had priced in an expected interest rate hike, as the US continues to tighten monetary policy.
But Mohammed Ali Yasin, chief executive of FAB Securities in Abu Dhabi, said the uptrend in US interest rates posed major risks for investors in Middle East bonds.
"The yields of A-rated and sovereign bonds will be under immense selling pressure which will push their prices even lower than the current rates," he said.
"Investors in the region who leveraged those bonds two-to-one through regional banks to increase their returns, will suffer negative selling pressure on those bonds going forward, as the cost of borrowing to leverage them will become higher than the yields they return. That hasn’t happened since the financial crisis started in 2008."