MENA Q4 Outlook 2017

While we continue to see very interesting opportunities across markets in the Middle East, the region remains out of investors’ radar mainly due to the lack of visibility on oil prices and geopolitical concerns. We believe that interest from investors should pick up as the oil market stabilizes and as Saudi Arabia gets closer to inclusion into the MSCI/FTSE Emerging Market indices in the first half of 2018. Our flagship MENA Equity Fund continues to perform well with a year to date performance of +13.86% (as of the 4th of October), outperforming the benchmark by +10.03%.

Allowing women to drive in Saudi Arabia might sound trivial for many, but we do see it as an important milestone towards economic diversification. To our opinion, the Kingdom’s biggest asset is its human capital and having half of the population idled has hampered economic growth.

In the UAE Dubai is still accounting for most of the economic activity this year. In Abu Dhabi, weak public spending is weighing down on the capital’s economic activity. However, the Emirate, which is one of the highest rated sovereigns (AA rating) raised USD 10 billion in bonds recently and approved AED 1.2 billion of infrastructure projects. After three years of stagnating
government expenditures, it seems now to be a good time to increase spending. This bodes well for 2018. The Qatari crises in getting less and less attention from its neighbors and does not seem to end anytime soon. Nevertheless, the economic pressure is real and the government started to liquidate some of its international assets to shore up its banking sector in the face of deposit drawdown, especially from GCC countries.

Signs of recovery are very promising in Egypt. We start to see a recovery in foreign investments into T-bills, an increase of remittances from Egyptians living abroad, a recovery in tourism and most importantly a large investment drive in infrastructure projects. True, there remain some major challenges such as high inflation, low savings rates, low capex, low productivity gains, stagnant income, more borrowing and debt monetization, etc. However, 2018 could very well be the inflection point for Egypt as the benefits of devaluation are starting to bear fruits. One of the most visible improvement is the 48% decrease in the trade deficit after a 14% surge in exports and a 30% drop in imports.

Download PDF