What's Up: Franklin Templeton believes Middle East and North Africa equities are set to outperform emerging markets as higher dividends and state-funded expansion lure investors.
Mena stocks tipped to outperform rivals
Franklin Templeton believes Middle East and North Africa (Mena) equities are set to outperform emerging markets as higher dividends and state-funded expansion lure investors.
The Bloomberg GCC 200 Index of the biggest GCC stocks rose 3.7 per cent in 2012, lagging behind the 15 per cent rally in the MSCI Emerging Markets Index. Shares in the Bloomberg GCC 200 Index, which includes the most-traded stocks in the six-nation group, offer a dividend yield of 3.91 per cent, versus 2.69 per cent on the MSCI Emerging Markets Index.
"As international investors search further afield for yield, the Mena equity case will garner more interest," said Bassel Khatoun and Salah Chamma, the Dubai-based co-heads of Mena equity at Franklin Templeton Investments (ME). Stocks trailed emerging-market peers in the past five years and "given the supportive regional fundamentals, there is a strong case for the reversal of that trend," they said.
Mena stocks underperformed peers as popular unrest in the Arab Spring and Dubai's debt crisis deterred foreign investors.
Momentum is returning as the GCC invests oil wealth on more than US$1 trillion of projects, including schools and roads in Saudi Arabia and stadiums to host the 2022 Fifa World Cup in Qatar. Companies benefiting from this spending will lure investors given attractive valuations, Franklin Templeton said.
Arabian Gulf equities trade at 1.55 times book value, or assets minus liabilities, while those on Egypt's index trade at 1.35 times - versus a multiple of 1.78 for developed markets in the MSCI World Index. The Bloomberg GCC 200 Index gained in early Dubai trading after after legislators in the United States passed a bill to avert spending cuts and tax gains threatening the economy.
Mena economies will grow 3.6 per cent in 2013, according to IMF forecasts - three times faster than average growth for developed nations, Bloomberg data shows.
* Bloomberg News