Business | Markets
Middle East equities 'undervalued and less volatile' than global stocks
Middle Eastern stocks, despite their huge surge last year, remain undervalued with the region's banks, financials and infrastructure firms an especially attractive bet, asset management firm T. Rowe Price says.
- Reuters
- Published: 00:32 March 10, 2008
London: Middle Eastern stocks, despite their huge surge last year, remain undervalued with the region's banks, financials and infrastructure firms an especially attractive bet, asset management firm T. Rowe Price says.
T. Rowe Price launched an Africa & Middle East Fund last September with $570 million under management, making it one of many companies looking to boost its exposure to the oil and commodity-rich region.
Joseph Rohm, an analyst dedicated to the fund, said the majority of its 30 to 40 stocks were in the Middle East and most of those were financials.
He said expected currency revaluations, growing infrastructure spending and China's growing presence in Africa provides scope for future gains.
Rohm said North African and Middle Eastern stocks trade at a price-to-earnings ratio of 14, versus 17 times for the MSCI benchmark emerging index.
"We feel that valuation gives a lot of support... We still think of this region as massively undervalued and less volatile than other markets going forward. That will be a big support."
Gulf stocks suffered a crash in 2006 that wiped billions of dollars off their value but they surged about 40 per cent last year as overseas investors piled in.
Less liquid African bourses are also benefiting from investors' fascination with so-called frontier markets - markets that are less developed but offer higher returns.
The trust's Middle Eastern financial stocks include Bank Muscat and Gulf Financial House, Rohm said.
"With the Fed having cut interest rates to the extent that it has, you've got this huge negative real interest rate environment which is fantastic for local banks to operate in," he said.
"Your asset price growth is very strong. We see the region really benefiting from de-pegging from the dollar going forward."
Gulf currencies' dollar pegs mean central banks must match US rate cuts but surging regional inflation will likely force them to de-peg and revalue the units sooner rather than later.
Rohm also saw the fund's infrastructure stocks drawing long-term benefits from China's activities in Africa.
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