Business | Markets
Gulf funds will recover lost capital
Gulf markets have been bleeding capital for the last few months. Regional fund managers, who had notoriously courted foreign fund managers, were not spared either, watching an exodus of capital from the markets as international exchanges crashed and burned.
- By Yadullah Ijtehadi, Special to Gulf News
- Published: 23:40 September 27, 2008
Dubai: Gulf markets have been bleeding capital for the last few months. Regional fund managers, who had notoriously courted foreign fund managers, were not spared either, watching an exodus of capital from the markets as international exchanges crashed and burned.
According to Zawya's Fund Monitor, Gulf investment managers had more than $50.6 billion of assets under management (AUM) by the second quarter of 2008, not including hedge funds or real estate funds.
Saudi Arabia dominates the industry with 230 funds with $29 billion of AUM, Kuwait has 80 funds controlling nearly $13.9 billion, the UAE has 22 funds with $1.85 billion in assets; Bahrain has 134 funds with a combined $4.97 billion in assets - not counting offshore funds - and Qatar and Oman bring up the rear with nine and seven funds, controlling $302 million and $283 million respectively.
Zawya estimates that the figure stood at around $47 billion in the first quarter of the year. And it will be interesting to see how the fallout of the global market carnage impacts on that figure by the third quarter.
"We have seen some redemptions primarily from foreign investors," says Derek Hong, senior fund manager at National Bank of Abu Dhabi, who manages five regional funds.
"But we have also seen some domestic buying. There is quite a bit of foreign interest still, believe it or not. Don't forget, the Gulf is going to have GDP growth three times that of the developed world."
For the moment though, it is difficult to see the woods from the trees. Six UAE-focused funds are in the top ten worst performing funds year-to-date.
Regionally, the MSCI GCC Markets index is down nearly 38 per cent this year with hopes of a post-Ramadan recovery dampened by the US carnage.
"Markets tend to climb a wall of worry, but the sun will rise again," says Hong. "We had seen a perfect storm, but past record shows that markets tend to recover more than 30 per cent within 12 months of such episodic events."
Other analysts share this enthusiasm. "While we cannot completely rule out further selling pressure, we believe current levels minimise downside risk particularly for the UAE and Oman," says EFG-Hermes in a GCC Strategy Note on September 14, titled 'Global Turmoil Creates Regional Opportunities'.
"We would.... strongly advise investors to use the current depressed levels as an opportunity to strongly accumulate positions in the market and we anticipate earnings announcements in October to be a key trigger for a significant recovery."
That recovery may come from within. It is a paradox that the world's financial institutions have been knocking on Gulf sovereign wealth funds to prop up them up, but the regional markets have suffered as a direct consequence of foreign investors pulling away.
Only three months ago, equity in the hands of non-Arab investors accounted for 18 per cent of total market cap in Dubai, 13 per cent in Abu Dhabi, and 25 per cent in Oman.
Substantial fall
Over the past three months, however, these levels have fallen substantially to seven per cent in Dubai, four per cent in Abu Dhabi, and 12 per cent in Oman, according to EFG-Hermes. And some expect domestic funds come to the rescue of the markets.
Walid Shihabi, head of research at Shuaa Capital, expects regional government investment funds and corporations looking at share buybacks to drive markets.
"While the emergence of these two sources will likely lead to a significant relief rally across the region, the longer term performance of the market will depend on widespread return of confidence, and a gradual settling down of global equity markets," Shihabi wrote in his report 'The Contrarian - A Long Story Sold Short'.
"If that happens, then fundamentals will gradually take hold of the market again, and as an Arabic proverb states, 'The river will return to its path'."
- The writer is managing editor, Zawya.com
Share this article
More from Markets
More from Business
Popular in Business
-
XPRESS
Way to go this DSF
A fun-filled route to guide you to all the happening dos in town
Business Editor's choice
-
Tight security for air show
Police announce measures to keep people and property safe
-
Nokia aims for 300m customers by 2012
Core focus will be on messaging, maps and navigation, music and applications
-
Court orders freeze on all Saad assets
Many UAE banks exposed to troubled conglomerate
