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POLL-Mideast funds more wary on Saudi after market surge, bullish on Egypt - Reuters News Mar 29, 2018

Invest AD‘s Sachin Mohindra, portfolio manager, quoted in Reuters monthly asset managers survey.

POLL-Mideast funds more wary on Saudi after market surge, bullish on Egypt - Reuters News

DUBAI, March 29 (Reuters) - Middle East fund managers have become more cautious about ploughing additional money into Saudi Arabian equities after the market jumped on expectations that it would be included in global indexes, a monthly Reuters poll showed on Thursday.

The Saudi stock index .TASI has rocketed over 9 percent so far this year on widespread expectations that FTSE Russell would decide this month to add Riyadh to its secondary emerging market index, and that MSCI would make a similar decision in June.

FTSE decided in favour of Saudi Arabia on Wednesday night, and many fund managers are positive on the kingdom‘s long-term outlook because of economic reforms now underway. (Full Story)

Sachin Mohindra, portfolio manager at Abu Dhabi‘s Invest AD, said one sector to benefit could be organised retailing. Women‘s purchasing power is increasing as more of them take jobs, while reforms are making it harder to hire cheap foreign workers, benefiting big retailers which can afford to employ Saudis.

"We expect earnings growth in Saudi Arabia to pick up over the next two years and hence remain constructive on the market," Mohindra said.

However, several managers said they might take profits on the Saudi market‘s rally in coming months as valuations were no longer as attractive as they were before the market surged, and risks -- such as a possible pull-back in oil prices -- had not disappeared.

The latest poll of 13 leading regional fund managers, conducted over the past week just before FTSE‘s decision, found 46 percent expecting to raise their Saudi allocations over the next three months and 23 percent to reduce them. (Full Story)

That is a positive balance, but significantly less positive than the result of the previous two polls, in which 69 percent expected to raise allocations to Saudi Arabia and none to reduce them.

Rami Jamal, portfolio manager at Amwal in Qatar, said seasonal factors could also slow markets in the Middle East over the next few months.

"Post-April, we expect the momentum in regional stocks to reduce as Ramadan and the summer holidays near us, where many investors tend not to be as active as in the first quarter."

Saudi Arabia‘s uptrend has come partly at the expense of other regional bourses, as money has flowed from them to Riyadh; Dubai‘s index .DFMGI hit a 25-month low this week, and Oman .MSI reached an eight-year low this month.

The latest poll suggested this trend might now moderate; 31 percent expect to raise equity allocations to the United Arab Emirates and 15 percent to reduce them, the first positive balance for the UAE since last December.

"Fundamental valuations are compelling and the value goes up with every index down-movement," Mohammed Ali Yasin, chief executive of FAB Securities in Abu Dhabi, said of the UAE.

"There will be two rights issues in the second quarter which will attract liquidity into the leading names in the banking sector, ENBD ENBD.DU and DIB DISB.DU."

Funds are heavily positive on Kuwait‘s equity market, because the country is due to join FTSE‘s emerging market index in September and MSCI may decide in June to place Kuwait on a watchlist for a possible upgrade to emerging market status.

Managers are on average bearish towards Qatar, however, because the season for annual dividend payments by Qatari companies -- a major attraction for the market -- has just passed. None expect to raise equity allocations to Qatar and 31 percent to cut them, the most negative balance since August.

The survey found 54 percent of managers expected to raise their equity allocations to Egypt and none to reduce them -- the most positive balance towards that country since February 2014.

Managers cited an improving macroeconomic outlook, with the country ramping up natural gas production, and political stability, with elections this week set to give President Abdel Fattah al-Sisi a second term in the absence of real competition.

"After years of political and exchange rate uncertainty, these factors have subsided. Most global and MENA investors are underinvested in Egypt and are only now warming up," said Vrajesh Bhandari, portfolio manager at Al Mal Capital in Dubai.

"Inflation is subsiding and that is driving a monetary easing cycle, which should spur capex spending by corporates. The devaluation has made Egypt very competitive on the export scene because of the cheap labour cost."

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