Gulf Investment Fund (GIF) has published its second quarterly report for the year (for the 3 months to 30th June 2024). GIF’s NAV fell 3.6% during the quarter, outperforming its benchmark – the S&P GCC Index – which was down 3.9%. Positive performance came from Qatar Navigation (up 8.9%), The Mediterranean and Gulf Insurance Reinsurance Group (up 10.7%), Qatar National Bank (up 3.0%) and Qatar Gas Transport (up 16.9%). Negative performers were Saudi National Bank (down 9.8% and Commercial Bank of Qatar (down 10.9%).
Portfolio activity
GIF’s manager increased the exposure to the materials and communication services sectors as it thinks valuations look undemanding and these offer attractive growth profiles. Reflecting this, the weighting to materials increased to 16.6% at the end of the second quarter from 11.1% at the end of the first, with new holdings in the Saudi cement sector. GIF’s manager says that these companies are well-positioned for increase in demand given their utilisation capacity potential. GIF also added a new holding in communication services taking its weight to 4.6%, mainly from the addition of Mobile Telecommunication Company, Kuwait. GIF’s manager says that this company is among the largest mobile operators in the wider region, with operations in 15 African countries and 7 in the Middle East. GIF’s exposure to industrials and energy rose from 23.0% to 25.6% and from 0.0% to 1.0%, respectively.
On the flip side, GIF’s weighting to the consumer and real estate sectors decreased from 12.0% to 5.1% and from 5.4% to 2.6%, respectively. GIF sold out of the health care sector entirely (weighting of 2.2% on 31 March 2024) in pursuit of more favourable investment opportunities elsewhere.
In country terms and relative to the benchmark, GIF remains overweight in Qatar (23.8% vs. benchmark weight of 9.4%) and Oman (2.1% vs 1.0%). The fund also has an overweight to Kuwait (10.4% vs 9.6%) and is further underweight UAE (4.4%, down from 8.4% at end of March, vs benchmark weight of 17.5%) as the manager reduced the UAE banking exposure. GIF’s weighting in Saudi Arabia, GCC’s biggest market, is 59.2% vs benchmark weight of 61.8%. Qatar remains an overweight as its macroeconomic resilience and Qatari stocks’ defensive characteristics make the country attractive in the manager’s view. GIF ended the quarter with 34 holdings: 21 in Saudi Arabia, 6 in Qatar, 3 in the UAE, 3 in Kuwait and 1 in Oman.
Outlook
GIF’s manager thinks that the GCC region has a positive economic outlook, with real GDP growth projected to rebound to 2.4% in 2024 and rise to 4.9% in 2025. This forecast is driven by substantial GDP increases in the UAE and Saudi Arabia, supported by expected increase in oil production in the latter half of 2024 and a global economic recovery. GCC growth is not solely dependent on oil since non-oil sectors are expected to sustain robust growth in the medium term. GCC infrastructure project awards for the first half of 2024 now stand at US$104.6 bn. The IMF expects UAE and Saudi Arabia to enjoy real Non-Oil GDP growth of 4.1% and 3.9%, respectively, in 2024; and 4.2% and 5.3% in 2025. The manager says that GCC inflation continues to trend downwards, with the IMF forecasting consumer price inflation to fall from 2.2% in 2024 to 2.1% in 2025. It adds that GCC visitor numbers continue to rise (in the first quarter of 2024, Qatar saw a 40% increase in visitors over the last year, reaching 1.6m, while Saudi Arabia’s inbound visitor spending grew by 22.9% to over US$12bn during the first quarter of the year). According to the manager, the GCC continues to look attractive on the back of increasing benefits of the socio-economic reforms being rolled out in the region and the large infrastructure project awards. It says that the economic outlook for 2024 is good with oil sector recovery, government spending and ongoing reforms amid global challenges.