What began largely as an act of frustration and defiance by one man in Tunisia has unleashed decades of pent-up frustrations that have begun to reshape a key region of the world. In a region that stretches from Morocco to Kuwait and covers terrain from mountains to desert, the range of economic activity in the Middle East and North Africa (MENA) is as varied as the geography. For the past several months, we’ve been bombarded with news about unrest in the Middle East and North Africa. We are witnessing a truly historic and exciting period for the region that may reshape world politics and economies. But it’s also a confusing time.
The actual size of the Middle East wealth management market is not very large; however, the opportunity it provides is indeed significant. The Middle East isn’t just a bubble. Even though stock markets have been in existence since the 1980s (in Saudi Arabia and Kuwait), mutual funds came into being only recently. The events in early 2011 that led to regime changes in Tunisia and Egypt and the ongoing challenges in Bahrain, Libya, Syria, and Yemen have affected the short-term macroeconomic outlook as well as the status and speed of economic reforms. After the first two quarters of 2011, ending with June, comes an important start up for the third quarter with July as the month of preparations for Ramadan. Major events shined the stars of July with a hot summer for funds.
Dubai is still attracting maximum foreign investment and international companies see Dubai as an essential stepping stone into the MENA. The government is enacting new laws and updating regulations to increase investor confidence, since they are attracted by its economic maturity, the ability to build a strong infrastructure and the country’s business-savvy approach and innovations. Despite the positivism of the events occurring in UAE, Analysts said that lower volumes in Trades were probably a result of many investors traveling before Ramadan.
SHUAA Asset Management, which has the longest investment track record in the MENA region, announced on the 16th of July that its flagship Emirates Gateway Fund (EGF) has outperformed its peers, its benchmark and local equity markets year to date. The EGF posted returns of 2.12% year to date, outperforming its benchmark, the S&P UAE Index, which was down -1.44%, as well as both the Dubai Financial Market which was down -4.66% and the Abu Dhabi Exchange which was flat.
Index compiler MSCI’s delayed decision over whether to upgrade the UAE to emerging market status until December, removed a key local catalyst from the equation and left the UAE’s bourses more susceptible to global uncertainty.
Saudi Arabia in vogue:
Saudi Arabian’s wealth management NCB Capital, the largest wealth manager in the Middle East with $14.9bn in assets under management, is initiating an intensive 12-month campaign of Shari'ah compliant funds launches as it seeks to tap runaway growth in demand for mutual funds and private wealth management. NCB Capital plans to roll out four Islamic funds over the coming year that will invest in Saudi real estate, equities and small- to medium-sized businesses (SMEs). The Riyadh-based bank is also in the final stages of a tie-up with an international asset manager to expand its global equity offering.
Qatar: Emerging ambitions
Good fundamentals and strong reserves are enough, in most managers’ eyes, to offset the fact that Qatar is actually a very small country with an extremely limited population and a stock market that counts only a handful of liquid companies.
The MSCI classification for Qatar will be the “Icing on the cake”. Oman: A resilient Economy
1- The Asset's Triple A Islamic Finance Awards 2011, Sukuk House of the Year.
2- Best Islamic Investment Bank, Asia , Best Islamic Investment Bank, Middle East.
3- Islamic Custodian of the Year for the second consecutive year.
4- Best Islamic Trade Finance Bank for Europe, Middle East and Africa (EMEA) from Trade Finance magazine Awards for Excellence 2011.
5- Credit Awards 2011.
6- Best Bank for Islamic finance for third consecutive year.
Kuwait: A Dynamic GrowthKuwait, the second largest regional market in terms of market capitalization after Saudi Arabia, remains the subject of debate.
On July the 5th, Gulf Investment Corporation (GIC) announced the half yearly returns for its Gulf Bond Fund, the GCC's oldest and largest fixed income fund. The fund, launched six years ago in 2005, achieved a Year-To-Date (YTD) return of 3.29%, showing consistent performance compared to the same period of 2010. The Fund was able to achieve positive performance for the second quarter in a row and continues to attract new subscriptions from a range of clients.
Kuwait's newly formed regulator Capital Markets Authority (CMA) has given investment funds until 12 March 2012 to sort out their ownership in financial securities, the state news agency said.
According to the CMA bylaws, and as reference to article 347 of the Law No. 7 of 2010, which came into effect in March but still not fully implemented, an investment fund cannot own more than ten percent in a single security. Laws and regulations must change in some time, but what matters is their effect on the country, so time is the only solution for the moment.
BlomInvest has launched a Saudi equity fund, in the first of an array of new offerings. The fund launched at the beginning of July with $11m, and has a target AUM of $25m. The new fund will be focused on leading Saudi equities. The firm has another three launches in the pipeline, one of which will target the Mena region and another which will be an Islamic-focused fund. The final fund is sector-specific.
HC Securities and Investment has launched a new balanced fund, “Credit Agricole Egypt Fund IV, with a geographic focus on Egypt’s market. The fund's assets will be invested mainly in equities of companies listed on the Egyptian Stock Exchange and in fixed income instruments with the objective of achieving medium to long term capital appreciation with moderate risk and have a weekly NAV frequency.
Tunis witnessed two new launches, specifically Tuniso Saoudienne D’Intermediation that has launched two equity funds, “FCP “AFEK CEA”” and “FCP “Al Imtiez””, both focusing on tunisia’s market. The funds’ assets will be invested mainly in equities listed on the Tunisian stock exchange with the objective of achieving long term capital appreciation and having a daily NAV frequency.
Al-Khabeer Capital, a Saudi company, has launched a new fund, “Al-Khabeer GCC Equity fund” that focuses on the GCC’s markets. The fund, an Islamic shariah compliant fund, has an objective of achieving capital growth with its assets investing mainly in Shariah-compliant GCC equities. The fund is benchmarked on S&P GCC Composite Shariah (TR)+ and has a Bi-weekly NAV frequency.
On the international level, The Bank of London and The Middle East (BLME), a UK-based wholesale bank, has launched its High Yield Fund. The fund, which will target institutional and high net worth investors in the GCC, is seeking to generate higher returns than those targeted by the company's US Dollar Income Fund. This is the second new compartment to be launched under BLME's Shari'ah Umbrella Fund this year and highlights BLME's continued commitment to developing competitive Shari'ah compliant funds across a range of asset classes.
National Bank of Abu Dhabi (NBAD) is planning to launch a new suite of dedicated fixed income products. The company’s first cautious fixed income fund will be launched in the third quarter of this year, with a cautious Islamic fixed income fund to follow approximately a month later.
Exchanges:
Most regional markets edged lower at the end of the month (closing 28 July 2011) amid a sell-off ahead of the month of Ramadan.
Across-the-board selling pulled the Saudi Arabia’s Tadawul All-Share Index (TASI) 0.5% lower to close at 6,445.2 points on 27 July 2011. Booming oil prices translate into strong economic growth for Saudi Arabia as a major oil exporter. Higher revenues eventually trickle down to the private sector which drives corporate profitability upwards. As a result, relevant stock prices should gain as future outlooks flourish. However, theory does not always mirror the practical side as proven by Saudi’s main stock market index, Tadawul All-Share Index (TASI). After the political worries during March, TASI regained its losses but never managed to climb more than 2% since the beginning of 2011.
Bahrain (BAX) index shed 0.5% as well to settle at 1,298.5 points.
Snapping a two-day winning streak, the Omani index slipped into the red (-1.3%) to close at 5,848.7.
Sell-offs across most counters knocked the Kuwait Stock Exchange (KSE) index 0.5% below the centerline to 6,036.0 points.
Egypt (EGX30) index as well witnessed a 0.5% decline closing at 5,022.3 points.
The QE (Qatar) index was the only index that edged up 0.03% to finish at 8,377.0. The Qatar Exchange expects to launch a direct market access, or sponsored access, service later this summer in a move to open up its stock exchange. This system offers international and local investors direct access to the market without going through the local broker’s order management system. Direct market access is an electronic trading facility that allows investors to manage a transaction themselves rather than use the broker’s in-house traders for order execution. This helps lower transaction costs, giving investors more control over the final execution and the ability to exploit price opportunities more quickly, while minimizing information leakage. Investors would need to be “sponsored by a local member of the exchange”.
The DFM (Dubai) index pared 0.1% to close at 1,506.1 points and the ADX (Abu Dhabi) index wiped out 0.5% to close at 2,628.0 points, as most sectors closed in the red.
Seldom is the underdevelopment of capital markets a positive thing. However, in the case of the MENA region, the lack of stock exchanges in several flashpoint countries may well turn out to be a blessing in disguise.
The Gulf’s recent financial experience was simply part of a learning curve for a robust frontier capital market that will bounce back in no time
According to Historical trends, stock markets are expected to decline over the week before Ramadan, caused by a combination of investors selling shares to raise money to cover high spending during the month and other investors realizing gains in anticipation of a fall in share prices during Ramadan, as expected by Jadwa Investments.
A further fall is expected to be seen in the first three weeks of Ramadan, probably the result of the same factors that cause the fall in the run-up to Ramadan in addition to investors paying less attention to the market, and therefore investing less, as the month progresses.
However, a revival in the final week of Ramadan is foreseen, to reflect investor buoyancy over the outlook for the post-holiday period.
The stock market performance during Ramadan 2010 perfectly fitted with these historical trends, but will the same event repeat itself again for 2011?
A further fall is expected to be seen in the first three weeks of Ramadan, probably the result of the same factors that cause the fall in the run-up to Ramadan in addition to investors paying less attention to the market, and therefore investing less, as the month progresses.
However, a revival in the final week of Ramadan is foreseen, to reflect investor buoyancy over the outlook for the post-holiday period.
The stock market performance during Ramadan 2010 perfectly fitted with these historical trends, but will the same event repeat itself again for 2011?
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