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Gulf Investment Fund discusses outlook following excellent year for Bahrain and Kuwait bourses

Gulf Investment Fund's new strategy is in place

Gulf Investment Fund (GIF) has delivered a total NAV return of +3.4% over its six-month interim period to end-December 2019, compared with a fall of 1.4% in the S&P GCC Composite Index. The MSCI Emerging Markets Index rose by 5.7% in the same period. The shares rose by 5.0%. Global equity markets ended 2019 near record highs. GCC markets rose, with the S&P GCC index up 8.3 per cent in 2019. Kuwait outperformed the others, ending the year up 23.7 per cent. Bahrain performed similarly closing the year up 20.4 per cent. Dubai and Saudi Arabia posted rises of 9.3 and 7.2 per cent respectively. Qatar rose 1.2 per cent, while Oman closed the year down 7.9 per cent. The following table, published in GIF’s report (source: Bloomberg), looks at the market performance by region.  

Country (Index)

31-Dec-18

30-Jun-19

1H19

31-Dec-19

2H19

FY19

Qatar 

10,299.0

10,455.7

1.5%

10,425.5

-0.3%

1.2%

Saudi 

7,826.7

8,821.8

12.7%

8,389.2

-4.9%

7.2%

Dubai 

2,529.8

2,658.6

5.1%

2,764.9

4.0%

9.3%

Abu Dhabi

4,915.1

4,980.0

1.3%

5,075.8

1.9%

3.3%

Kuwait

5,079.6

5,832.1

14.8%

6,282.5

7.7%

23.7%

Oman

4,323.7

3,884.9

-10.1%

3,981.2

2.5%

-7.9%

Bahrain

1,337.3

1,471.0

10.0%

1,610.2

9.5%

20.4%

S&P GCC Composite

107.2

117.7

9.8%

116.1

-1.4%

8.3%

Crude (Brent)

53.8

66.6

23.7%

66.0

-0.8%

22.7%

Emerging Markets (MSCI EM)

965.7

1,054.9

9.2%

1,114.7

5.7%

15.4%

World (MXWO)

1,883.9

2,178.4

15.6%

2,358.5

8.3%

25.2%

The manager noted the following:

“Military action by US and Iran has heightened tensions in the region, but it has not, at the time of writing, caused any of the GCC governments to change their economic outlooks.  Nor do we expect it to, given that these sorts of events have occurred in the past.

Saudi Arabia raised US$25.6 billion by listing just 1.5 per cent of Aramco’s shares on its exchange, the Tadawul. This translates to a US$2 trillion valuation, as the stock price rose on the first two days of trading.

Following the Aramco IPO, MSCI and FTSE announced Aramco will be included in their emerging market indices. Aramco will have a weight of c 0.15 per cent  in MSCI EM which is expected as a result to attract US$700 million of passive inflows. Aramco will have a c. 0.3 per cent weight in FTSE EM which should see it attract passive inflows of c. US$650 million.

Kuwait’s MSCI EM inclusion in May 2020 will mean it has a weighting of 0.69 per cent of the index, and this should attract US$2.7 billion from passive investors.

The proposed c.5 per cent listing of Aramco, higher foreign ownership limits in UAE and Kuwait’s inclusion will take the weight of GCC in the MSCI EM Index to c.6.7 per cent (current weight 4.0 per cent).”

Banking, infrastructure and industrials sectors best placed

GIF provided the following outlook statement:

“The IMF expects growth in the region rise to 2.5 per cent in 2020, up from 0.7 per cent in 2019. Gradual recovery in oil prices and continued infrastructure spending will likely boost economic activity in the medium term. Rising oil output in Kuwait and Saudi Arabia, and gas output in Qatar and Oman, should support growth in the hydrocarbon sector.

With large investments anticipated over the next few years, the manager expects to see increasing opportunities in banking, infrastructure and industrials. The oil price remains a key risk. Further decreases in oil prices would lead to GCC governments limiting spending. Despite this, the Investment Adviser remains optimistic on the regional growth prospects, buoyed by planned infrastructure projects and positive momentum in economic and social reforms.”

The company’s top-five holdings at year-end are shown below.

Company

Country

Sector

% share of GIF NAV

Emirates NBD

UAE

Financials

13.3%

Qatar Gas Transport

Qatar

Energy

8.1%

Commercial Bank of Qatar

Qatar

Financials

7.0%

Qatar National Bank

Qatar

Financials

5.0%

Abu Dhabi Islamic Bank

UAE

Financials

3.9%

GIF: Gulf Investment Fund discusses outlook following excellent year for Bahrain and Kuwait bourses

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