GCC Equity Funds are worth $20b - Kuwait and Saudi dominate


In a recently monthly publication by Kuwait Financial Centre (“Markaz”), it is stated that total assets managed by mutual funds under “Equity funds” is slightly more than $20 b. The report states the total number of funds as 118 and assets under management as $21.3 billion. Nearly 40% of this is from Islamic segment. Saudi Arabia leads the table with nearly $10 b of which 63% are Sharia compliant. Kuwait is the next highest with $6.3 billion of assets managed over 27 funds. However, the share of Sharia equity funds is 15%. Saudi Arabia and Kuwait together account for 76% of the total. Assets managed by these mutual funds as equity funds account only for 2% of market capitalization, implying the strong presence of retail investors in the market. In terms of market share, HSBC Saudi Arabia holds the top position with a share of 15% followed by Riyad Capital with 12%. Kuwait based Kuwait Financial Center (Markaz) is positioned at fourth place with a share of 8%. At a country level, HSBC Saudi Arabia dominates the Saudi equity funds market with a market share of 43% while Markaz dominates the top slot in Kuwait with a share of 26%. It should be noted that this study pertains only to equity funds and hence the ranking would be different if all funds category is taken into account. Table: Summary of GCC Asset Management Industry – Equity funds (March 2008) Country    Conventional Funds    Islamic Funds Total Share of Total    Market Cap ($Bn)    Share of Total    AUM/ Mcap No. of Funds    AUM ($Bn)    No. of Funds    AUM ($Bn)    No. of Funds    AUM ($Bn)    Saudi Arabia    14    3.66    17    6.16    31    9.82    46.1%    489.11    43.8%    2.0% Kuwait    16    5.44    11    0.94    27    6.38    29.9%    207.50    18.6%    3.1% UAE    11    1.74    3    0.10    14    1.84    8.6%    233.46    20.9%    0.8% Qatar    6    0.05    1    NA    7    0.05    0.2%    129.21    11.6%    0.04% Bahrain    2    0.04    0    NA    2    0.04    0.2%    29.35 2.6%    0.1% Oman 3    0.05    0    NA    3    0.05    0.2%    28.55    2.6%    0.2% GCC/MENA    23    2.22    11    0.92    34    3.14    14.7%    Total    75    13.19    43    8.13    118    21.32    1,117.2    1.9% Source: Markaz Research Performance of GCC Markets and Funds (March 2008) The report states that following generally solid performance in February, GCC Equity Funds suffered poor performance in March due to sluggish GCC markets, which were following largely negative global market cues. Fund managers were hit by increased allocation to Saudi Arabia, which was the worst performing market in the GCC as the MSCI Saudi Arabia plummeted by 11.6% As a result, fund managers attempted to reduce exposure to volatile markets by marginally reducing their exposure to riskier equities to 93%. In addition, cash held by GCC funds increased by 1 percentage point. Fund managers also diversified away from the GCC by increasing allocation to Other MENA markets to 10%. All country-specific MSCI indices reversed February gains and posted negative returns in March 2008. The largest decline was Saudi, as illustrated by the 11.6% drop in MSCI Saudi Arabia due to low investor confidence and higher inflation. The decline in the three markets (Saudi Arabia, UAE and Qatar) which comprise 75% of the total market capitalization in the GCC region ensured that the aggregate MSCI GCC index would drop, posting a loss of 9.9%. Bahrain was the only GCC market to post a positive return – the MSCI Bahrain index gained 0.7% in March. On an asset weighted average, GCC equity funds lost 5.2% in March 2008. Allocation Trends by Geography – GCC Equity Funds Trends in allocation to the Saudi market reversed in March 2008. While the allocation has been declining since December 2007 (from 35% in December 2007 to 25% in February 2008), it increased by 1 percentage point to 26%. Allocation to Kuwait decreased substantially from 23% in February to 15% in March. This has been adjusted with the higher allocation to Other MENA markets that increased from 4% in February to 10% in March. While allocation to Oman and Qatar decreased by 2 percentage points and 1 percentage point respectively, asset allocation to the UAE increased by 3 percentage points while allocation to Bahrain remained unchanged at 4%. None of the 34 funds (Islamic & Conventional), with geographical focus on the GCC, tracked by Markaz posted positive returns during January 2008. In spite of sharper decline in the benchmark for conventional funds- the MSCI GCC posted a loss of 9.9%, the extent of decline during the month was less intense for conventional funds. Sharia compliant funds experienced higher losses even though the benchmark for Sharia compliant funds posted a loss of 7.4% in March 2008. ### About Kuwait Financial Centre “Markaz” Kuwait Financial Centre S.A.K. 'Markaz', with total assets under management of over USD 5.09 billion as of March 31, 2008, 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 recently awarded a BBB+ corporate rating by Capital Intelligence Ltd.