Funds To Cut UAE, Qatar Exposure After MSCI Upgrade – Survey

A substantial number of Middle East funds intend to cut their exposure to stocks in the United Arab Emirates and Qatar, shifting money to less richly valued markets such as Saudi Arabia, a monthly Reuters survey showed.

Shares in Dubai, Abu Dhabi and Qatar have surged over the past 12 months in anticipation of those markets’ upgrade to MSCI’s emerging market index, which will take place at the end of this week.

Many funds believe risk/reward ratios for the three markets have now deteriorated: the latest survey of 15 leading investment managers, conducted over the last 10 days, found only 20 per cent expect to increase their allocations to UAE equities in the next three months, while 40 per cent expect to cut them.

These figures mark a further deterioration from the April survey, when 27 per cent of managers expected to raise their UAE equity allocations and 40 per cent expected to reduce them.

In Qatar’s stock market, 20 per cent of funds expect to increase their allocations while 33 per cent foresee cutting them. That is a major shift from April, when 40 per cent intended to raise allocations and only 13 per cent to decrease them.

“The markets are volatile in UAE and Qatar, and may continue to be so in June until the end of Q2,” said Mohammed Ali Yasin, managing director of NBAD Securities in Abu Dhabi.

The survey was conducted by Trading Middle East, a Reuters forum for market professionals.

SAUDI, EGYPT

Some of the money leaving the UAE and Qatar looks set to flow to Saudi Arabia’s stock market; 47 per cent of managers expect to raise their allocations to the Saudi bourse, while only seven per cent intend to cut back.

The survey suggests Egyptian equities will also benefit. The bullish percentage in that market is 27 per cent, with no manager expecting to reduce allocations.

Much of the optimism towards Egypt is based on expectations that a victory by former army chief Abdel Fattah al-Sisi in this week’s presidential elections will lead to more political stability and an economic recovery. However, the survey was taken before the voting took place in unexpectedly low turnout, which may weaken Sisi’s mandate.

There is also some evidence that money will flow from the peaking Gulf stock markets to Middle East fixed income; 27 per cent of managers expect to raise allocations to fixed income and 13 per cent to reduce them.

That is a big change from April, when 13 per cent expected to increase their fixed income allocations and 33 per cent foresaw decreasing them.

For a second straight month, the survey revealed signs of returning confidence in Turkish equities, after a long period in which funds pulled money out of Turkey because of political instability and a weak lira.

Thirteen per cent of managers expect to raise their equity allocations to Turkey over the next three months while seven per cent expect to cut them.