Middle East fund managers have become more bullish towards equities in the region over the past month because of flows of money into emerging markets globally, but they remain wary of the direction of oil prices, a Reuters poll found.
The poll of 14 leading fund managers, conducted over the past week, found 43 per cent expect to raise their allocations to Middle Eastern equities in the next three months and 14 per cent to reduce them.
That is the most bullish balance for equities since February this year. In the previous month‘s poll, 7 per cent anticipated raising equity allocations and 7 per cent reducing them. (Poll findings are here: )
"Over the last few weeks emerging market funds have seen their highest inflows in three years," said Sachin Mohindra, portfolio manager at Invest AD in Abu Dhabi.
"The resultant exhange-traded fund creation has continued to create a bid for underlying markets, which include United Arab Emirates and Qatar in this region."
However, many fund managers said uncertainty over oil prices remained a negative for Gulf Cooperation Council economies, while the GCC‘s second-quarter corporate earnings had generally been lacklustre, though mostly in line with expectations.
"There are many headwinds facing the GCC economies in the September quarter, especially in the consumer spending sector and its ripple effects on other parts of the economy including banking sectors," said Mohammed Ali Yasin, head of NBAD Securities in the UAE.
The previous poll showed a rise of interest in fixed income, partly because of the shock of Britain‘s decision to leave the European Union. Twenty-nine per cent of fund managers expected to increase their allocations to bonds in the next three months and none anticipated reducing them.
The latest poll shows managers have now become less bullish on balance towards fixed income, with 29 per cent positive and 21 per cent negative, as they have shifted back towards equities and as some of the fears surrounding Brexit have eased.
Managers have become more positive towards Saudi Arabian equities, the latest poll found; 50 per cent now expect to increase allocations there and 14 per cent to reduce them, compared to figures of 29 per cent and 7 per cent previously.
Saudi Arabia has lagged other major Gulf bourses such as the United Arab Emirates in the last few months, and although consumer-related Saudi companies reported weak second-quarter earnings because of a slowing economy, many petrochemical firms reported better-than-expected quarterly profits, partly because sales dropped less than feared.
Sentiment has also improved towards Qatar, where 36 per cent expect to increase equity allocations and 14 per cent to reduce them, compared to 14 per cent each a month ago.
Akber Khan, director of asset management at Al Rayan Investment in Doha, said Qatar could get a boost when it is promoted this September to the status of a secondary emerging market from a frontier market by index compiler FTSE.
Funds have become more positive on balance towards Egypt after last week‘s news that Cairo was close to agreeing on a loan from the International Monetary Fund - a step that would involve economic policy conditions which could help to revive foreign investors‘ confidence in Egypt, although they could also slow the economy further in the immediate term.
Twenty-nine per cent now expect to raise equity allocations to Egypt and 43 per cent to reduce them, compared to 7 per cent and 36 per cent a month ago. A few managers responded to the poll before news of the IMF deal.
Twenty-nine per cent now expect to cut their equity allocations to Turkey, from already-low levels, and none to increase them after the failed coup attempt in that country in mid-July. - Reuters