LONDON: Equity fund Frankfurt Trust said it sees solid banks and a rising population as making Saudi Arabia the best investment pick in the Middle East and North Africa region, along with Egypt s banks and Dubai stocks.
Redemptions and market falls have slashed the value of the trust s Emerging Arabia fund from some ?400 million in June 2008 to ?25.5 million ($34 million) in early April.
Emerging Arabia fund manager Birgit Ebner told Reuters she is hoping for a turnaround in the fund s fortunes as emerging markets rally.
She has 29 percent of the fund in Saudi stocks, which fell 49 percent in the last year but have gained 14 percent since March 1. The global benchmark for emerging stocks rose some 30 percent since early March.
The fund also has 11 percent invested in the United Arab Emirates, plus smaller holdings in Qatar and Lebanon.
Financials, followed by telecoms and transport, constitute Ebner s the top sectors in the Middle East and North Africa region.
The banks are solid, with a favorable loan to gross domestic product ratio, she said of Saudi Arabia. And because of the buoyant population, we see a lot of potential for growth, Ebner told Reuters on Friday.
Ebner said corporate earnings in Gulf Cooperation Council (GCC) members such as Saudi Arabia, the UAE and Qatar would likely turn around thanks to government spending, even if oil prices remain low.
Most of the listed firms (in the UAE) aren t directly in the oil business, so the oil price has only a secondary effect on them, she said, noting 65 percent of the UAE s gross national product was from firms outside the oil sector.
Oil plummeted from more than $140 a barrel in July 2008 to less than $35 in February, before recovering above $50 in March.
Standard & Poor s said last month Dubai s economy, one of seven in the UAE, could shrink 2 percent to 4 percent in real terms this year, after its once-booming real estate sector ground to a halt.
Dubai s stock market has fallen some 70 percent in the past year, and Ebner said it now offers some favorable valuations, though she cautioned fallout from Dubai s real estate sector remained a concern.
Ebner remains cautious about Kuwait, whose share index has fallen 7 percent so far this year.
We saw two problems, Ebner said, noting banks were too closely interlinked with the infrastructure sector and some listed companies had subsidiaries that it was difficult to obtain information about.
Ebner put 3 percent of the fund in Lebanon, including in firms with rebuilding Beirut s war-torn infrastructure. She also sees potential in Egypt, where the EGX 30 index has dropped over 55 percent in the past 12 months.
The banks are solid because they do most of their lending domestically, she said. Most workers in Egypt are paid not with a check but in cash, so as this changes, banks deposits will be growing.
