What asset class and geography are you focused on?
I manage long-only active equity portfolios and funds in the Mena geography with a special focus on the GCC. I am strongly committed to bottom-up stock picking through fundamental research.
What is the outlook for the month ahead in your opinion?
While it is very difficult to predict short-term price movement, I am generally positive on the equity markets in our region, especially from a medium-term perspective. We might see some short-lived profit booking and rotational trades in the GCC in the very short term. However, any correction will provide opportunities to increase exposure. The macroeconomic picture in the GCC remains robust, fundamentals of GCC companies have shown continuous improvement and current valuations do not fully discount underlying growth. Government policies across our region are supportive of growth and local liquidity, and sentiment has also seen a significant improvement. All this is extremely encouraging for equity markets.
What are the main risks (either upside or downside) to the outlook?
The region's largest market, Saudi Arabia, currently does not allow direct investment in its equity markets by non-GCC foreign investors. A significant upside could come in the form of a decision by the Saudi Capital Market Authority to open up its equity markets for direct access. This will not only boost sentiment but also result in substantial liquidity flows. An upgrade of UAE and Qatar to emerging market status by MSCI will also result in improved sentiment and potential liquidity flows and deliver upside. Moreover, any sustainable recovery in the global economy and the consequent strengthening of oil prices will also create an upside. Downside risks would include a prolonged slowdown in the global economy, a prolonged slump in oil prices and an escalation of the political turmoil in the wider Mena region.
What is the best investment at the moment in your opinion?
The GCC markets offer a number of interesting opportunities to choose from. I think that the UAE markets will continue to do well this year. However, given that they have rallied aggressively in the last four months, investors will need to be prudent and choose companies which have a credible and sustainable growth strategy and look closely at valuations. I still believe that recent price rallies in some stocks have just reflected their improved risk profile and have still not adjusted for potential growth. Companies which benefit from rising consumption demand across the GCC will continue to do well. For the long-term investor, Saudi petrochemicals and select GCC banks offer significant valuation upside.
What was the best investment you were ever involved in?
I was a relatively early investor in a number of Saudi consumer stocks such as Extra, Al Othaim, Al Tayyar. These investments generated strong absolute and relative returns for our flagship fund. This, along with the decision to overweight UAE stocks significantly in regional portfolios late last year, would rank among my best investment decisions in recent times.
What was the worst?
I took an exposure to mid-sized Saudi industrial names after the Saudi government announced a series of measures to boost infrastructure spending in the kingdom in 2011. I invested in companies with a good track record and with a product offering which made them clear beneficiaries of any increase in infrastructure spending. While I was right in terms of higher tendering activity in the kingdom and new order flows, I underestimated the massive margin squeeze given significant international competition, especially from Asian companies. Given the low margins and returns on these new projects, stock valuations suffered.
[ lgutcher@thenational.ae ]
