Dubai: Valuations of companies in Saudi Arabia, which is slated to open up for foreign investors in June, are not too cheap, and that could trigger a more prudent and cautious approach from investors, a top official at Emirates Investment Bank, a leading asset manager, told Gulf News.
The Capital Markets Authority (CMA) is planning to allow in foreign investors from June 15, a move closely watched by the global fraternity, as the world’s biggest exporter of petroleum gives access to own shares of Saudi Basic Industries and National Commercial Bank.
The Saudi Tadawul index has been the best performer in the region, with gains of more than 18 per cent so far this year, compared to Dubai index, which gained 13 per cent.
“If the Saudi market continues to see the upward trend that we have seen in the last couple of weeks, then the markets would be extremely expensive, and then we are not going to see interest in the market. Foreign investors would be much more prudent and cautious. They would rather prefer to wait,” Nadi Bargouti, managing director at Emirates Investment Bank told Gulf News.
Valuations in Saudi are not cheap, but there is a lot of growth, he said, adding, “they won’t be willing to pay too much of a price for growth”. Emirates Investment Bank likes consumer discretionary companies compared to petro chemicals in Saudi Arabia.
He said volatile oil prices is a concern for investors but still there is a lot of interest.
Emirates Investment Bank expects oil prices to rebound from current levels, though $100 (Dh367) per barrel mark looks unlikely.
The asset manager has five model portfolio and fits in the investors by mapping out their risk profile and income.
Emirates Investment Bank, which manages $2.1 billion in assets under management, invests money for foreign and also local clients globally across different asset classes.
Improved sentiment
Bargouti expects the improved sentiment among global investors to remain over the next few months due to accommodative monetary policy in the United States and Europe even as there exist a lot of uncertainties relating to Greece, along with Russia and Ukraine and geopolitical uncertainties in the region.
“Investor sentiment has improved but it hasn’t improved to the extent at which it would drive markets to the level they should be.” Sentiment has been driven by the accommodative stance from the central banks globally, triggering appreciation in asset prices.
“All this increases in asset prices be it fixed income or equities are reasons for me to be a bit concerned, but I’m not worried as yet,” Bargouti added.
Allocation
“We have a significant allocation to global fixed income at this time given the interest rate environment that we have globally and try to find out yields without undermining the credit quality of the investment,” Bargouti said.
Due to signs of an economic recovery, analysts feel that the US Federal Reserve would raise rates sooner than later.
In the equity space, valuations in the US are approaching their fair value, amid optimism over forecast of earnings growth for this and next year.
Emirates Investment Bank favours European equities despite a more than 20 per cent return so far in the year, Bargouti said. Emirates Investment Bank also likes China and Japan.
“The strategy, [was that] investors used to put money in any geographies or asset classes and that made money, but today you need to be more selective, though the investment climate is not as worrisome as most people portray it to be,” Bargouti said.
