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The September 2007 report on GCC Asset Allocation from Kuwait Financial Center S.A.K. (“Markaz”) recommends an increase in allocation to Saudi Arabia and neutral allocation to Kuwait. . The research is based on a proprietary model which generates asset allocation weights on the six GCC markets and has consistently outperformed the benchmark index. For the month of August 2007, the model portfolio generated a return of 6.84% compared to benchmark return of 5%, thereby outperforming the benchmark. For the year, the model portfolio generated a return of 15.3% against benchmark return of 12%. Saudi Arabia was the best performing market in August 2007 among the GCC markets, gaining 9.20%. Markaz model allocated the highest to Saudi Arabia at 75%. The next highest allocated market i.e., Kuwait returned positive with 1.08%. Qatar was a dampener with a negative performance of 1.76% to which the model was allocated nearly 11%. Recommended Asset Allocation Strategic (%) Recommended - Sep 2007 (%) Fund Manager’s Average - July (%) KSA 56 79 24 Kuwait 19 18 24 UAE 14 13 21 Qatar 8 8 12 Bahrain 2 2 2 Oman 1 2 5 Cash/(Loan) 0 -20 11 Other MENA 0 0 2 Total 100 100 100 The model portfolio has further increased its allocation to Saudi Arabia from 75% in August to 79% for the month of September. This is attributed to the strong gains reported by the Saudi market outperforming other GCC markets by large margin. The allocation is 23% higher than the strategic allocation. The Model portfolio allocation to Saudi market is also much higher than the fund manager’s average allocation of 24%. The model portfolio has reduced its allocation to Kuwait from 26% in August to 18% in September 2007 following small gains during the month of August 2007. The allocation is however much lower than fund manager’s 24% allocation. The model portfolio has increased its allocation to UAE from 5% to 13%, as the market performance was broadly in line with other GCC markets. The allocation to UAE is now broadly in line with the SAA allocation of 14%, but much lower than the fund manager’s 21% allocation. The model has reduced its allocation to Qatar from 11% to 8% while allocation to Oman has been increased from 1% to 2%, following a month of out performance. The model has maintained its equal weight position on Bahrain. Following positive returns in August, the model portfolio has maintained its 20% leveraged position in line with the previous month. Market Review: Indicators M. Cap (USD Bn) Last Close Aug 07 % YTD % 06 % P/E P/B Saudi (TASI) 373 8227 9.20 3.70 -58 15 4 Kuwait (KSE) 187 12686 1.08 26.01 -15 19 3 Abu Dhabi (ADI) 83 3437 -1.25 14.57 -35 15 3 Dubai (DFMGI) 75 4255 -0.42 3.10 -63 15 3 Qatar(Doha SM) 70 7484 -1.76 4.92 -36 16 3 Bahrain (BAX) 26 2529 -1.61 14.03 -5 12 2 Oman(Muscat SM) 16 6650 3.48 19.15 2 13 3 Source: Excerpt from Markaz “Daily Morning Brief” dated 02 Sep 2007. Saudi Arabia Saudi market remained the best performing market in GCC, for the second consecutive month. The market gained 9.20% in August, extending the previous month’s gain of 8.09%. As a result, Saudi market ended the month with a year to date return of 3.70%. The rally was driven by gain in the heavyweights like SABIC, Saudi Telecom, Al Rajhi Bank and Samba Financial Group. SABIC advanced by 6% in August, following a 13% gain in July. The company completed the $11.6 Bn acquisition of GE Plastics during the month. Saudi Telecom (STC) advanced by 10% in August, following a 12% gain in July. Al Rajhi Bank was the top performer with 21% gain, while Samba Financial Group gained 10%. Recently listed Saudi Kingdom Holdings was the only loser (2% down) among the top 5 companies. Kuwait Kuwait market took a breather in August, still ending the month in green with a monthly return of 1.08%. This follows the 3.45% return in July. Kuwait remains the best performing market in GCC, with year to date gain of 26.01%. Among the heavyweights, MTC gained 5%, recovering partially from a 10% decline of the previous month. MTC announced plans during the month to invest about $484 Mn in the Republic of Congo over the next five years to explore in Africa. Kuwait Finance House and National Bank of Kuwait also gained during the month, extending the gains of the previous month. National Bank of Kuwait won the bid to buy AlWatany Bank of Egypt for $516 Mn. The bank also plans to set up a KD30 Mn banking affiliate in Syria. Among the losers, National Insurance Group and Agility declined by 4% and 10% respectively. UAE Abu Dhabi and Dubai markets corrected further during the month. Abu Dhabi index ended 1.25% lower, while Dubai declined 0.42% in August. With this correction, the two indices are now up 14.71% and 3.10% respectively on year to date basis. Among the heavyweights, Etisalat and Emaar Properties ended the month flat. Other heavyweights like National Bank of Abu Dhabi, Dubai Islamic Bank and Emirates Bank all ended the month lower. The market witnessed a few large merger and acquisition news during the month. Dubai World announced the acquisition of 9.5% stake in MGM Mirage Entertainment Company for $5 Bn. Abu Dhabi National Energy Company (TAQA) acquired Pioneer Canada for $540 Mn. Qatar Qatar (DSM) ended 1.76% lower during the month, following a 3.66% gain in the month of July. All the heavyweights like Industries Qatar, Qatar National Bank, Qatar Telecommunications Company (Qtel), Qatar Islamic Bank ended lower. During the month, subsidiary of Qtel, Asia Cell Communications (Iraq) announced to buy the Iraqi operations of Orascom Telecom Holding. Recently, AsiaCell, MTC and Korek Telecom, each have obtained a 15 year US$ 1.25 Bn worth of Iraqi mobile license. Oman and Bahrain Oman was the second best performing market in the GCC, during the month. The market gained 3.48%, following a gain of 1.48% in July. The year to date gain now stands at 19.15% making it the second best performing market in GCC on year to data basis after Kuwait. After barely managing positive return in May (0.93%), Saudi market declined by 6.98% in June. Saudi remains the worst performing market in the GCC region with a year-to-date return of -12.15%, on the back of a 58% fall in the previous year. All the top 5 stocks (by market cap) declined during the month. SABIC the biggest stock by market cap in Saudi declined 10% by during the month, while Al Rajhi bank also pared 10% during the month. Saudi Telecom and Saudi Electricity each declined by 4%, while SAMBA Financial Group declined by 5%. ### About Markaz Kuwait Financial Centre 'Markaz', with total assets under management of over KD1.21 billion as of March 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 recently awarded a BBB+ corporate rating by Capital Intelligence Ltd.