Funds Global MENA asked ATAF AHMED, HEAD OF ASSET MANAGEMENT – QINVES, for his assessment of the past year and his predictions for the coming 12 months.
What is your outlook for investments in the MENA region over the next 12 months?
We expect the region to continue to witness volatility over the next 12 months, with oil stabilising between $70-$80. However, regional markets continue to demonstrate their resilience in the face of macroeconomic headwinds.Historically, the main driver for market performance has been higher oil prices and index-related events. Looking at the top performers within the MENA region over the past year, the standouts have been businesses in Qatar and Saudi Arabia.Qatar’s market has been pulled higher as the increase in foreign ownership limits result in an increased weighting for some of its largest stocks within emerging market indices. Within Saudi Arabia, the impending MSCI reclassification has resulted in significant investor positioning. We have also seen entities which benefit from higher oil prices, such as those operating in the petrochemical sector, post strong returns.Looking ahead, we see much higher dispersion within markets, especially Qatar, as new companies see their foreign inclusion factor lifted by index providers, resulting in higher weightings for companies such as Mesaieed Petrochemical, Barwa and Qatar Fuel. For Saudi Arabia, the final inclusion may act as a positive catalyst for markets, although typically this has already been priced in and a brief correction could be experienced.
What are your top investment concerns?
Three concerns which require close monitoring are continued geopolitical tensions, the rising strength of the US dollar and current stock valuations.Historically, the region has suffered tremendously from geopolitical volatility. Within the last 18 months, we have witnessed the imposition of the blockade on Qatar, intensifying international pressure on finding a solution in Yemen and renewed tensions related to Iran. While these events have not dampened international investors’ appetite to date, they may continue to cause concerns amongst investors in the coming year and beyond.In addition, if the US continues its rate-rising trajectory, we anticipate a dual impact on the region. A stronger US dollar will have a negative impact on oil prices which will negatively impact regional fiscal strength as government revenues decline.We may also see investors rotate out of emerging markets, which could see selling pressure on those regional markets included in the emerging markets exchange traded funds.Finally, valuations today are somewhat stretched as a result of index related activity. Further significant multiple expansion is unlikely, so future growth will have to derive from earnings performance. We therefore need to see real growth to sustain the current valuations.
Are you planning any product launches in the MENA region? If you have launched a product in this region in the past 12 months, please give a performance review and your expectations.
Earlier this year, the Ijarah platform launched the QINVEST SQN Income Fund III, which was significantly oversubscribed in the offer period, raising $65 million. The platform has now grown to $165 million in less than two years, paying investors a healthy distributed yield on a monthly basis. In Turkey, the team benefited from volatility in the markets and continued to deliver top quartile performances.