GCC Equity Funds


Challenging Start for 2008 In a recent report published by Kuwait Financial Centre (“Markaz”), it is stated that after a spectacular December, January 2008 turned volatile and provided the least returns in the last 12 Months (LTM). MSCI GCC declined by 9%, spear headed by Saudi Arabian market with a loss of 13.4%.

The GCC equity funds on an asset weighted average returned a negative 3% compared to a rollicking 10% in December 2007. Performance of GCC Markets and Funds (January 2008) The decline in the three markets (Saudi Arabia, UAE and Qatar) which comprise 75% of the total market capitalization in the GCC region ensured the aggregate MSCI GCC index returning -8.6%. Kuwait, however, bucked the trend and posted a positive return of 7.5%, while Bahrain and Oman provided some relief. Managers were seen increasing cash and reducing Saudi exposure in response to the mayhem.

In response to the decline in Saudi Arabia, funds were seen reducing their allocation to Saudi Arabia. The aggregate allocation to Saudi Arabia declined by 5% during January 2008 to 30%. Funds such as Khaleej Equity Fund, SIB GCC Equity Fund and AlBasha’er GCC Equity Fund considerably decreased their exposure to the Saudi market. Khaleej Equity Fund decreased its allocation by 11%, SIB GCC Equity Fund and AlBasha’er GCC Equity Fund reduced allocation by 8%. Bahrain also witnessed a 100 Bps decrease in fund allocation. The decline in fund allocation to the Saudi Arabia and Bahrain was compensated by increased allocation to Kuwait (up 2%), the UAE (2%) and Qatar (1%).

The 26% fund allocation to the UAE was the highest since April 2007. AlBasha’er GCC Equity Fund increased its exposure to the UAE market by 7%. Allocation to Oman and other MENA markets remained unchanged from December 2007 levels. Allocation Trends by Geography – GCC Equity Funds (until January 2008) The decline in January seems to have also instilled some amount of caution amongst money managers. Mutual funds have reduced their exposure to equities as an asset class and have increased their allocation to cash and bonds. Mutual funds decreased their equity allocation to approximately 90% in January 2008 from 93% in December 2007.

This represented the lowest equity allocation since July 2007. Furthermore, on average, the cash held by GCC funds increased by 3% to 9% Only 4 of the 24 funds tracked by Markaz posted positive returns during January 2008. The extent of decline during the month has been less intense on the Sharia compliant funds. The benchmark for Sharia compliant funds posted a positive return of 1.7% in January 2008 as compared to a negative return of 8.5% on MSCI GCC Index. Conventional GCC Funds Among conventional funds, Al Ahli Gulf Fund, which had an equity allocation of 66% in the Kuwaiti market, was the best performer with returns of 3.1%. Khaleej Equity Fund, among the top five performers in December 2007, continued with the trend, yielding monthly returns of 2.7%. Furthermore, Khaleej Equity Fund increased its exposure to equities by 6 percentage points in January 2008. Vision Emerging Fund, which provided the highest returns in December 2007, was in the third position with a monthly loss of 0.7%. Islamic GCC Funds In January 2008, Riyad Gulf Fund was the best performing Sharia compliant fund with returns of 0.3%. However, it should be noted that the fund does not invest in Saudi Arabia.

The performance of the benchmark index was better than all Sharia compliant funds as it recorded positive returns of 1.7% . Al Dana GCC Equity Fund posted a loss of -1.8% in January after returning 9.8% in December. AlBasha’er GCC Equity Fund was the third-best Shariah compliant fund, as it decreased its allocation in the Saudi market by 8%. Al-Tawfeek Gulf Equity Fund and Gulf Industrial Companies fund posted a loss of 4.5% and 5.1% respectively.

Both these funds had a high exposure to weak Saudi market ### About Markaz Kuwait Financial Centre S.A.K. "Markaz", with total assets under management of over KD1.31 billion as of December 31, 2007, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997; and was awarded a BBB+ corporate rating by Capital Intelligence Ltd.