Business | Investment
Markets in Mena remain attractive
Funds invested in the Middle East and North Africa (Mena) region "skyrocketed" nearly 20 per cent in the first half of this year, according to a report early this month by Lipper, the analysis company.
- By James Drummond, Financial Times
- Published: 23:51 August 22, 2008
Funds invested in the Middle East and North Africa (Mena) region "skyrocketed" nearly 20 per cent in the first half of this year, according to a report early this month by Lipper, the analysis company.
In particular, those vehicles focused on Qatar enjoyed spectacular returns. Qatar Gate N, a fund managed by Doha's Amwal, rose 30 per cent in the first six months.
The performance comes at a grim time for equity funds internationally. These vehicles were down nearly 13 per cent in the first half, according to Lipper.
Michael Hartnett, Merrill Lynch emerging markets equity strategist, said in a note last week that in the year to date the Gulf Co-operation Council was the only region in the world where financial stocks had made a positive return - they were up 3.6 per cent.
So are Gulf markets still attractive to overseas investors or has the moment passed? The consensus seems to be that yes, they offer upside - but they are not as attractive as they were last year.
The reason is that valuations that had made China and India expensive last year have returned to normal with the disappearance of local investor euphoria. "China and India had become extremely expensive in the first three quarters of last year," says Jonathan Garner, global emerging market strategist at Morgan Stanley in London. "We were arguing that people should shift money from that part of the emerging market benchmark and instead be underweight."
Arabian index
Last October, when Morgan Stanley started coverage of the MSCI Arabian Markets index, which includes markets such as Egypt as well as the GCC, it was trading at price/earnings ratios of slightly more than 16 times.
The broader MSCI Emerging Markets index, in which India and China are included, was on 18.5 times earnings - so the Middle East looked cheap.
MSCI Arabian Markets is now trading at 16.2 earnings while the broader index of emerging markets is on 16.7 times.
"As we sit here today there has been a complete about-face," Garner says. "We have not changed our stance on the region, but the valuation advantage has diminished and is dim-inishing all the time."
Akber Khan, emerging Europe, Middle East and Africa equity strategist at Deutsche Bank in London, concurs that the fundamentals of the GCC remain attractive. But large orders or exits may take time to be filled, he says. "Overall, as far as fundamentals are concerned, [the Gulf markets] are among the most attractive investors can find right now, and resilience to the global econ-omic malaise is set to remain impressive ... Where [the region] scores less highly is on liquidity."
"Apart from a few stocks, it is something for the buy-and-hold institutional investor rather than the trading oriented player."
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