DUBAI, 9 August 2007 — Egyptian investment bank EFG-Hermes, which manages about $2 billion of assets in Arab equities, said it plans to increase its allocation to Saudi Arabia, betting record oil prices will spur profits and shares.
EFG increased its allocation to the world’s largest oil exporter to 15 percent from nothing at the start of the year, Hashem Montasser, head of regional asset management at EFG, told Reuters in Dubai.
“We’re very interested in Saudi Arabia,” Montasser said yesterday. “We’re ramping up our coverage of that market. There are very few institutional players there.”
EFG favors Saudi Telecom Co. and smaller rival Etihad Etisalat (Mobily), as well as banks including Al-Rajhi Bank, Montasser said.
The cement and building materials industries are also interesting, he said. “Mobily is the more vibrant, but Saudi Telecom is considering acquisitions,” Montasser said.
Saudi Telecom agreed to buy into Malaysia’s Maxis in a $3 billion deal in June in its first foreign acquisition.
About $1.2 billion of EFG’s portfolio is in Gulf markets and the rest in Egypt and Jordan.
Saudi Arabia’s main stock index was the worst performer last year among 81 tracked in the world by US stock market research company, Birinyi Associates, plummeting 52.5 percent after soaring on the back of rising oil prices in the preceding two years.
Other Gulf markets also tumbled last year with Dubai, Abu Dhabi and Qatar dropping more than 35 percent after rallying to record highs in 2005.
When the Saudi market, the largest Arab bourse, peaked in February 2006 it was trading at more than 40 times expected annual earnings. Since then average valuations have fallen in Saudi Arabia to between 14 times and 15 times expected 2007 earnings, and 11 times to 13 times in the rest of the Gulf, Montasser said.
Dividend yields are between 5 percent and 8 percent on combined earnings growth of more than 25 percent, he said.
“The biggest opportunities are in the Gulf. The economies are very strong,” he said.
Oil prices, on which Gulf Arab producers depend for about a third of the combined gross domestic product, soared to a record $78.77 per barrel in New York on Aug. 1.
After falling through January to March, most of the markets have picked up. Kuwait, the best performer in the Gulf, is up almost 24 percent this year, and Oman and Bahrain more than 16 percent.
Saudi Arabia is the only loser, down a little over 2 percent, though it was down more than 15 percent earlier in the year.
The Kingdom restricts foreign investment in its stocks, with even fellow Gulf Arab nationals forbidden from investing in banks. Nationals from outside the Gulf are only allowed to tap the market through mutual funds.
Credit Suisse said last month Gulf Arab stocks were the most attractive in the world, underpinned by oil prices and government spending.
Blakeney Management, a London-based company that manages about $1.5 billion in emerging markets, including the Middle East and Africa, said this month it increased its allocation to the Gulf to as much as 40 percent from 15 percent at the start of the year, with Abu Dhabi its biggest exposure in the region.
“Building materials and construction companies are interesting in the UAE,” said Montasser, identifying Abu Dhabi’s Aldar Properties and Sorouh Real Estate and Dubai’s Arabtec Holding.