Although fund managers are still operating in a world of uncertainty, those covering the Mena (Middle East, North Africa) region have turned positive on financial equities.
According to a sector update from Standard & Poor’s, financial stocks in the Mena region bounced back strongly, despite a lack of consensus among managers as to whether the worst is over for the sector on a global basis.
After being the main laggard in 2008 and 2009, the sector performed well in the first seven months of 2010, although the best-performing names have been the higher quality ones. “Some managers have turned more positive and have benefited from the re-rating of the sector,” said S&P Fund Services analyst, Roberto Demartini.
For example, the team at SICO Arab Financial Fund saw its positive view on financials pay off, returning 10.6% against 1.8% to the end of July 2010. While Amani Al-Omani’s team at Markaz maintained its strong record of outperformance on its Mumtaz fund, returning 1.74% compared to -0.66% for its KIC index benchmark mostly by maintaining a focus on banking.
The team at Muscat Fund has increased its exposure to the banking sector on expectations of credit growth in the second half of 2010, no further deterioration of asset quality and on cheap valuations.
But the S&P analysis found that fund managers were not all convinced the worst is over, however. “Others have reduced their exposure to financial names on concerns over the slowing balance sheet growth, flat to negative net interest margins and high credit costs,” Demartini said. Rajesh Venkiteswaran at Vision, for example, expects credit growth to be moderate across the GCC and has reduced exposure to banking.
Another area of diverging views was Kuwait, with the vast majority of managers continuing to be negative and losing out when the market did well early in the year. Amani Al-Omani at Markaz was an exception, benefiting from her position in Kuwaiti telecoms operator Zain, which saw its stock performing strongly following news of the sale of non-core assets.
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