Saudi Arabia plays spoil sport for GCC Equity Funds

07/10/2007

Qatar star performer, up by 8.2% for Sept07 After providing 8% and 9% returns in July and August respectively, the Saudi Arabian markets provided a negative return of -5%. This negative return has wiped off all the YTD gains in Saudi Arabia and the YTD return as at the end of September stands at -1.26%, making it the worst performing market so far in GCC. Heavyweights like Kingdom Holdings, Saudi Telecom, and SABIC Group ended lower. One of the reasons for decline in the market was profit booking, especially in the insurance sector. Kuwait market continued to register positive returns in September, with a monthly return of 1.28%. This follows the 1.08% return in August. Kuwait remains the best performing market in GCC, with year to date gain of 27.63%. The rally was led by NBK which gained 10%, on top of a 6% rise in the previous month. NBK’ shareholders approved a 20% hike in the capital during the month to finance its recent acquisitions and expand its regional business. Also, NIG posted a rise of 10% in the month.. NIG was amongst the biggest buyers in the NBK’s sale transaction of 80 Mn treasury shares. Amongst, other major corporate actions, Kuwait Finance House announced to set up a firm that would trade Islamic bonds on the secondary market. MTC gained 2% during September compared to 5% surge in the month of August. The company expects the net profit growth to remain flat in 2007 due to investments in Iraq and Saudi Arabia. UAE posted a positive return of 1.08% during September as against negative return of 0.96% in August. Among the heavyweights, National Bank of Abu Dhabi and DIB Properties ended the month with negative returns. Other heavyweights like Emaar Properties also posted a negative growth. Qatar (DSM) ended 8.19% higher during the month, following a 1.76% decline in the month of August. All the heavyweights like Industries Qatar, Qatar National Bank, Qatar Islamic Bank and Qatar Commercial Bank ended higher. Qatar National Bank is offering 32.5% of shares of its Syrian unit via IPO route. The bank has also hiked its stake to 30.14% in The Housing Bank for Trade and Finance (Jordan). The positive news in banking continued as Capital Intelligence upgraded the long-term foreign currency rating of Qatar Islamic Bank from ‘BBB+’ to “A-“. Oman market gained 5.05%, following a gain of 3.48% in August. The year to date gain now stands at 25.17% making it the second best performing market in GCC on year to date basis after Kuwait. Gain in the market returns were driven by many corporate actions. Performance of GCC Equity Funds Out of the 24 GCC equity funds tracked by Markaz, 17 funds delivered positive returns during August 2007, a period for which latest results are available. The tope performing funds for the year, which includes Markaz GCC Fund, have all posted returns greater than 25%, far exceeding the MSCI GCC Index performance of 17%. Al Ahli GCC Trading Equity Fund managed by The National Commercial Bank topped the monthly performance with 4.3 percent return in August 2007 Saudi-based GCC funds to a greater extent are invested in their home markets. This is technically termed as “Home bias”. The top three funds in August are from Saudi Arabia and benefited from this home bias. . However, the same “home bias” may hurt some of these funds during September, 2007. On an over all basis, most of the GCC equity fund managers remain bullish on the prospects of the GCC markets. This is evident from the fact that the majority of the funds remain almost fully invested in equities with average equity allocation at 91% in August 2007. However, we do notice that many fund managers are slowly moving into cash/bonds. Significant among them is AlBashaer GCC Equity Fund, with a 14% allocation to cash. It is the second largest fund in terms of size. Khaleej Equity Fund managed by SICO also has a 27% cash. Asset Allocation Markets Asset Allocation (%) (Sep 2007) Asset Allocation (%) (October 2007) Saudi Arabia 79 30 UAE 13 14 Kuwait 18 20 Bahrain 2 2 Qatar 8 13 Oman 2 2 Cash/(Loan) -20 20 TAA 100 100 Source: Markaz Analysis The Asset Allocation Model (A proprietary quantitative asset allocation model built by Markaz research) has reduced its allocation to Saudi Arabia from 79% in September to 30% in October indicating an underweight position. This is following negative returns during the month of September 2007. Allocation to Kuwait is increased to 20% from 18% following a month of out performance. The model has increased its allocation to Qatar from 8% in September to 13% for the month of October. This is attributed to the strong gains reported by the Qatar market outperforming other GCC markets by large margin. ### 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.