Funds managers bullish on Saudi equities

Middle East fund managers remain positive towards the equities in Saudi Arabia, the Gulf region's most oil-sensitive market, with 46 percent portfolio managers polled last week by Reuters planning to raise their allocations and none to reduce them.

The optimism comes in the wake of pending decision from international index compiler MSCI on whether it will study the possibility of including Saudi Arabia in its emerging market index, Reuters reported.

The MSCI decision is likely to come June 20.

The FTSE, meanwhile, will decide whether to raise Saudi Arabia to the status of a secondary emerging market in September.

“This has been keeping Saudi shares on asset managers' radar since the start of the year, as they slowly start to build positions in anticipation of entry into the MSCI index,” the news agency said.

For equities in the United Arab Emirates (UAE), the fund managers held a more bearish outlook – a first in more than two years – because of low trading volumes and financial pressure on some companies, the report said.

Six out of 13 leading portfolio managers (46 percent) expect to cut allocations to UAE stocks over the next three months, while only three (23 percent) planning to raise them.

In the previous poll a month ago, 31 percent of the surveyed managers expected to reduce allocations and 38 percent to increase them.

“Fund managers have traditionally praised the UAE for its diverse economy, which has helped the country ride out the slump in oil prices. With an average trailing price-to-earnings ratio of 9.3 times, Dubai stocks are cheaper than equities in most other regional and emerging markets,” the report said.

The weak performance of the Dubai stock index, however, is beginning to affect funds' decisions, it added.

The index is up just 1 percent over the last 12 months, underperforming other major bourses in the Gulf and MSCI's emerging market index, which is up 25 percent.

The poor performance has depressed trading volumes in Dubai, making it less attractive for institutions.

Another factor weighing against Dubai is the softer real estate market as many major stocks – including banks and blue-chip developer Emaar Properties – are heavily exposed to property prices, the news agency said.

Many managers said that valuations might be a factor that could change their approach to UAE equities in a positive direction later this year, it added.