Middle East fund managers have turned more positive towards equities in the region after a plunge in markets reduced valuations and oil prices rebounded, a monthly Reuters survey shows.
The survey of 15 leading investment firms, conducted over the past several days, shows 20% expect to raise their equity allocations to the Middle East in the next three months, while 7% expect to reduce them.
That is not a particularly bullish ratio by historical standards, but it is a positive shift from last month’s survey, when only 13% expected to increase equity allocations and 20% to cut them.
Stock markets in the Persian Gulf Arab states hit multi-month lows in August, tracking oil prices, which plunged to their lowest levels since 2009 on oversupply and worries about China’s economy. But oil has rebounded sharply in the last few days, triggering equity market rallies across the region, although all markets are still in the red month-to-date.
Stock exchange data shows institutions stepped in as buyers in August when markets hit bottom and retail investors were dumping stocks indiscriminately.
Saudi Arabia’s bourse, the region’s biggest market, does not provide weekly data on selling and buying by retail and institutional investors, but in Dubai, which has the second busiest stock exchange in the Persian Gulf, institutions were net buyers last week while retail investors were net sellers.
“It is difficult to forecast short-term equity market performance, which is likely to be affected by global macro variables such as fluctuating oil prices and China’s growth outlook,” said Sachin Mohindra, portfolio manager at Abu Dhabi’s Invest AD.
“But as long-term investors we would like to use the recent sharp fall in valuations to gradually and opportunistically increase our exposure to our favourite stocks, particularly in the United Arab Emirates and Saudi Arabia.”
In UAE, fund managers are particularly bullish on the UAE as 40% expect to increase their equity allocations there–the same percentage as a month ago–and none plan to cut them, as opposed to 7% in July.
“The recent correction in the UAE market provides us with an opportunity to increase our exposure to stocks with good dividend yield,” Mohindra said. “We will also look to increase our exposure to stocks which quote at discounts to our stress-tested book values.”
At its five-month low on Aug. 24, Dubai’s stock index had a forward price-to-earnings ratio of 11.0 times, down from 16.8 a year earlier.
Egypt is the second most favorite stock market among fund managers after underperforming the region this year. The main Cairo index has dropped 21% year-to-date while Persian Gulf Arab markets’ losses are all in the single digits.
