"When it comes to the banking sector, we are selective in the region. We do not expect credit growth in the first half of the year," said Sankar Kailasam, the fund's manager and senior vice president for asset management at Gulf Baader Capital Markets in Muscat.
Banks in the region have had to take large provisions against their exposure to indebted conglomerates and certain family-owned groups in the wake of the global financial crisis, curtailing their ability to lend more.
"There could be a few more family groups which might face trouble due to debt burden. I expect some issues to crop up and hence I am very cautious," Kailasam said.
The manager prefers banks which have provisioned well against bad loans and are adequately capitalized to take advantage of a revival in credit growth in the latter half of the year.
Among banking stocks, the fund has the largest exposure to Bank Muscat, Oman's largest lender by market value. The stock has risen about 30 percent this year, despite reporting a fourth-quarter loss of 6.7 million Omani rials ($17.40 million).
The manager also likes petrochemical stocks like industry leader, Saudi Basic Industries Corp, saying a rise in oil prices should augur well for the industry. But in the short-term he expects to see a correction as prices have run up recently.
"SABIC at current price is well ahead of its fundamentals. There might be some correction in the short-term," he said.
The open-ended fund invests in a range of stocks spanning different industries, including infrastructure, petrochemicals and banking. The fund has returned 8.8 percent so far this year and yielded more than 77 percent over a five-year period.
"In 2008, when markets were in bad shape, we stayed 15-20 percent in cash. Also, we bought into defensive sectors like retail and consumer oriented stocks which performed relatively well even during the crisis," Kailasam said.
Geographically, the fund has heavy exposure to Saudi Arabia, Oman and Qatar. Kailasam said he expects to bring down his Oman exposure, which stands at around 43 percent, and build on Saudi and Qatar exposure.
"Relatively speaking we expect better returns from Saudi Arabia, Qatar than the other markets," he said.
The manager cites government spending on infrastructure in Saudi Arabia as his investment case for the region, while in Qatar he expects the strong economic growth to trickle down to companies in the region.
The fund has the lowest exposure to United Arab Emirates (UAE) and said it demands more clarity on Dubai World's debt situation before increasing its exposure.
"We significantly cut down our UAE exposure in 2008 and have been underweight since then. There are still outstanding issues with regard to government guarantees etc," Kailasam said.
The fund also has a mandate to invest in bonds but does not expect to make any investments in the asset class in the near-term due to better prospects in equity markets.
"When you are expecting a 15 to 20 pct growth in equity markets, you would prefer to be invested there than in bonds," Kailasam said.
Oman fund manager ‘selective’ on Gulf banks
Publication Date:
Wed, 2010-04-07 07:36
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