High quality assets and a leading market share
Most mutual funds in positive territory, timely investments in the "Fixed Income Program" yield excellent returns
Introduction of put and Islamic options tools pending KSE approval due August
Recession-proof real estate investments in KSA, Qatar, Lebanon
Markaz, reported its financial results for the first half ending 30 June 2009. Net profit reached KD 2.2 million, or earnings per share of 5 fils compared with KD 9.1 million in net profit and an EPS of 20 fils for the same period last year. "Markaz" short-term debt totalled KD 4.9 million and total debt reached KD 33.6 million which represents 6% and 42% of shareholders’ equity, respectively. Fee income remains healthy at KD 3.8 million and formed more than 70% of total income.
Mr. Diraar Y. Alghanim, Chairman and Managing Director said "As "Markaz" celebrates its 35th year anniversary this August, it continues to innovate and adapt to the challenges of market cycles and financial crises. "Markaz" has a portfolio of high quality liquid assets, low debt-to-equity ratio and almost zero short-term debt. Additionally, "Markaz" continues to generate a high fee income as a percentage of equity."
"Markaz" equity investment products delivered good returns and were among the top performing funds in their respective categories for the period. "Mumtaz Fund", "Markaz’s" flagship Kuwait focused fund, achieved a gain of 13.4 percent outperforming the benchmark with considerable margin while "Markaz Gulf Fund" recorded gains of 12.8 percent for the first half of the year. As for "Markaz Islamic Fund", returns were good and up 4.2% percent despite provisions taken as a result of exposure to illiquid money market investments.
Kuwait market, largely mired by the uncertain political scenario as well as the ailing investment and real estate sectors, made a possible bottom in March and saw steady gains in equity prices. The leading market weighted Index registered gains of 10.4 percent for the 1st half of the year, wiping out accumulated losses for the year; the index posted a 42 percent gain from the bottom of the first half of the year. Other GCC markets in the region also posted noteworthy returns for the period with MSCI GCC posting 16.6 percent return for the first half of the year.
All "Markaz" international products outperformed their benchmarks as of the end of June 2009, owing to opportunistic investing and dynamic asset allocation. "Markaz" portfolio of private equity investments was down 4.17% for H1 2009 due to slow M&A activity.
The "Emerging Markets Thematic Fund", which invests in a portfolio of globally diversified equities with a focus on select themes, returned 11.04%. “Atlas Diversified Class”, which seeks to obtain consistent returns with low volatility by investing in a portfolio of global securities and financial products returned 7.36% beating its respective benchmark by a handsome difference. The "ETFs Program" which aims to outperform broad market and sector indices by allocating its assets into various Exchange Traded Funds was up 11.11%, compared to MSCI world which was up 4.76% for the same period.
"Markaz" began the process of partial pro-rata redemptions on its money market funds. The first batches of redemptions represent approximately 40% of the total assets for “Markaz Idikhar Fund” and 20% of “Markaz Islamic Income Fund”. All additional income earned from that period including any profit credited to the Fund’s account shall accrue to the unit holders.
In Q1 2009, "Markaz" seeded and launched its "Fixed Income Program" which selectively invests in GCC secondary markets for bonds and sukuk. The Program gained 16% as of close of June 2009 beating the 4% targeted return for the same period and with lower risk than equity investments at a time where most asset classes declined. Fixed income notes issued by sovereign and corporate entitles are trading at steep discounts due to the global credit crunch that affected international banks and hedge funds which were the major investors in the GCC bonds and sukuk market during the last few years. Distressed selling led to very attractive valuations. Measured by DIFX/HSBC index, spreads for regional bonds have widened by 394% in 2008, while yields increased by 70%.
The Kuwait Stock Exchange is expected to approve by the end of August various enhancements to options such as the launching of put options which can be used as a hedging strategy; also, an Islamic alternative to call options "Arboun Contracts" when launched will make the KSE the first market in the world to offer such a tool; in addition to allowing trading of options during regular trading hours. "Markaz" is also steering other parties in becoming market makers and is sharing its accumulated expertise in this field. "Markaz" now has 56 companies listed on the options market.
"Markaz", using "Forsa Financial Fund" as the GCC region's first and sole market maker of options since 2005, has been actively engaging with the Kuwait Stock Exchange to develop the options market further. As forward trading is being phased out by the KSE, options are being hailed as a worthy successor. "Markaz" is working with the KSE on placing previously submitted proposals on the fast pedal.
MENA Real Estate
The Levant region seemed more resilient to the global financial crisis as residential real estate in Lebanon remains strong whereas "Markaz" commenced selling of luxurious apartment units in Clemenceau overseeing Ras Beirut seafront. As for the "Markaz Real Estate Opportunities Fund" which invests in the MENA region and “Aradi Portfolio” in KSA, development is underway and underlying investments are all on track to achieve their respective targeted IRRs.
"Markaz Real Estate Fund", a local income generating real estate fund, worked on preserving its NAV valuation which was down 8.1% until the end of June 2009, however cash distributions and redemptions remain unaffected and provided much needed liquidity at a time where corporate dividends and deposit interest rates substantially decreased.
US Real Estate
In the first half of 2009, conditions in the U.S. real estate markets have continued to deteriorate. Commercial property values are expected to decline further in the next two years for two main reasons. First, weak economic conditions are leading to challenging net operating performance for all property types (declining rents and rising vacancies). Second, the upcoming maturities of commercial mortgages (over US$ 1 trillion over the next 4 years) will impose greater financial distress on market participants. Given the current environment, "Markaz" is proactively working with property managers, tenants and lenders in order to preserve capital values. Notwithstanding the above, "Markaz" continues to see opportunities on the distressed debt side for commercial and residential properties and is working on several products in the pipeline due to be launched in 2009.
Oil and gas
"Markaz Energy Fund" was up 9.6% as of the end of June 2009. The sustained performance of Kuwait First Transportation Company and the restructuring of the Fund's investments have been major drivers in the recovery of the NAV. The proceeds were reinvested in a variety of asset classes including oil and gas related fixed income securities and international and local equities.
In Q2 2009, "Markaz" closed its branch in Qatar Financial Centre due to a cost optimization program after having established a sales and marketing distribution channel through alkhaliji Bank, a leading institution in the State of Qatar, and its network of branches. Furthermore, we continue to service Qatar-based clients from our Kuwait Head Office.
Kuwait Financial Centre S.A.K. "Markaz", with total assets under management of over KD 900 million (USD 3.1 Billion) as of June 30, 2009, 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.
Photo Caption: Mr. Diraar Y. Alghanim - Chairman and Managing Director of Kuwait Financial Centre S.A.K. "Markaz"