GCC Equity Mutual Funds:

In a recently published monthly report by Kuwait Financial Centre "Markaz", which aims to analyze the performance of equity funds across the region, it is stated that, GCC markets going through a rollercoaster in 2008, with H1 being positive for the six economies followed by an abysmal second half which saw assets under management (AUM’s) of GCC funds contract by a massive 46%. There continues to be a cloud of uncertainty over the local, and international, financial landscape, with equity markets trading sideways, liquidity being tight and good news being somewhat scattered, although governments have shown proactive measures aimed at bolstering their economies. However, AUM’s continued to decline in the first quarter of the year; the good news is that the shrinkage seems to have steadied somewhat. AUM’s for both country specific and pan-GCC funds contracted by 23% in the QTD period to USD 9.0 bn. The QTD decline was led by Qatar and Kuwait, which saw their AUM’s shrink by 29% and 34%, respectively. Saudi Arabia’s AUM contraction has moderated though; declining by 10% QTD after plunging 55% between April – December 2008, in line with the market stabilizing.

Conventional fund AUM’s declined by 26% in the QTD period while those for Islamic funds declined by 19% to USD 3.59 bn. Most Equity funds continued to languish in the red, but there were some gainers in Saudi Arabia and the UAE.

AUM Contraction from April 2008 – March 2009 (USD bn)

Source: Markaz Research

Asset Allocation Trends– GCC Equity Funds (March 2009)

Exposure to Saudi Arabia and Other MENA segment increased at the expense of Qatar and UAE (Table 2). Allocation to Saudi Arabia increased to 34% in Mar-09 from 29% in Apr-08. Exposure to the UAE fell to 15% in Mar-09 from 27% in April of last year, signifying lack of confidence in the UAE markets.

Geographical Allocation - Equity Funds

Fund managers sustained their end of 2008 asset allocation; holding 20% in Cash while exposure to Equities was at 75% and Bonds held 5% of allocation.

Saudi Arabia Equity Funds

Saudi Arabia’s Tadawul All-Share Index (TASI) was the second best performing GCC market in 1Q09, declining 2.07%. Total volume and value traded in March 2009 stood at approximately 4.89 Bn and USD23.34 Bn, respectively. While the volume traded rose by 12.6% during the month, value traded declined by 4.3%. Concentration of the top five stocks in terms of volume and value traded to total market capitalization stood at 19%.

In March, fund managers increased their allocation to cash to 4% (on an asset weighted basis) and held 96% of assets in equities. AUM’s declined by 10% to USD 3.9 bn from USD 4.35 bn in December 2008.

Kuwait Equity Funds

The Kuwait Index continued to decline in 1Q09 amid continued financial turbulence and poor corporate results. The Price Index closed out the quarter with a loss of 13.87%. All sector indices lost in the first quarter, mirroring the general turmoil and economic uncertainty, except the Food index, which managed to gain 4.60%. The largest declines were in the Insurance and Investment indices, declining 25% and 20%, respectively.

The Kuwait market, dominated by the financial sector, continues to feel the ramifications of the global financial turmoil. Kuwaiti funds have been affected by low investor confidence, high risk aversion, and poor corporate results, all of which has led to sweeping redemption of funds. In the third quarter of 2008, the KSE Price Index lost 17% and AUM’s contracted by 9% to USD 6 bn. However, the 39% plunge in the index in 4Q08 proved too much for investors to tolerate, as AUM’s in Kuwait Equity Funds shrank by 22.2% in the fourth quarter.

The continued decline in the Kuwait Stock Price index during the first quarter of the year adversely affected the performance of funds. The Kuwait Stock Price index’s closed the quarter with a 13.87% decline while the Weighted index was down 12%; the continued poor market performance has caused increased risk aversion among investors, evident in the 34% contraction in AUM’s in the first quarter of 2009.

Kuwait Equity Fund AUM’s and KSE Returns

Source: Fund Fact sheets, Markaz Research, Reuters

Qatar Equity Funds

Qatar’s Doha Securities Market (DSM) plummeted in the first quarter of 2009, falling 29% i.e. a worse performance than the 28% in 2008 as weak investor sentiment and a selling drive overtook the market. The DSM plunged into the red in January and February, losing 24% and 16%, respectively, before picking up a gain of 10% in March. The Banking & Financials and Insurance sectors lead the index decline, falling 32.38% and 32.16%, respectively, in 1Q09.

AUM’s for Qatari equity funds contracted a further 29% in the first quarter to USD 180 mn, after shrinking in half between April and December of 2008.

Other GCC Equity Funds

UAE Equity Funds - The UAE stock markets went in opposite directions in the first quarter of 2009; Dubai (DFM) lost 4.15% while Abu Dhabi (ADX) gained 4.10%. The DFM’s loss was led by the Investment & Financial Services sector, which lost 14.55%, but was countered by gains in Transportation and Consumer Staples, 16.6% and 15%, respectively. Abu Dhabi’s return was led by a 33% gain in Telecom, but countered by losses in Industrial, Real Estate, and Construction of 16%, 30%, and 23%, respectively.

AUM’s for UAE equity funds fell 14% in 1Q09 to USD 560 mn.

Oman Equity Funds - The Muscat Securities Market (MSM), like all the other GCC markets, has been adversely affected by the global financial turmoil, falling 15% in the first quarter of the year, largely due to a 12% drop in January and a lack of recovery in subsequent months. The Services & Insurance index has led the market down, declining by 14.6% in 1Q09. Assets under management (AUM’s) for Omani equity funds contracted by 13% to USD 60 mn after plunging 53% from April to December 2008.

Bahrain Equity Funds - The MSCI Bahrain index lost 26% in 1Q09, while the Bahrain Exchange was down 11.5% driven by Commercial Banks and Services which dipped 18% and 13% for the quarter. However, Bahraini equity funds managed to outperform the benchmark.

Bahrain AUM’s fell a further 6% in the first quarter of the year.

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