Morgan Stanley positive on Middle East equities

Dubai: Morgan Stanley revised on Sunday its recommendation on the MSCI Arabian Markets Index, recommending investors to begin increasing their exposure to Middle Eastern stocks as valuations are more attractive now than at any time in the past two years.

Since advising investors to reduce their exposure to the region in October 2008, the region has underperformed other emerging markets and Morgan Stanley's latest report, "MSCI Arabian Markets: Economically resilient and valuations appealing again-start increasing exposure," states that the timing is now right to begin increasing exposure in regional equity markets, highlighting Saudi Arabia as a particularly attractive market for investors along with Qatar and Egypt.

In the report, Michael Wang, a Global Emerging Market Strategist at Morgan Stanley, said "Saudi Arabia is in one of the strongest positions to weather the global crisis due to the fact it possesses one of the largest pools of FX savings and accumulated fiscal surpluses in the world, a sound banking system and minimal real estate exposure. The prospect for further liberalisation of equity markets in the country to foreign investors provides an additional incentive to increase positions."

Wang also believes the Middle East region will be economically resilient. "Despite a sharp cyclical contraction in GDP growth this year due to falling oil revenues, we think the region will be more resilient to the global downturn due to favourable underlying domestic demand trends, strong fiscal stabilisers, monetary easing in the short term and low external debt relative to FX reserves."