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|10 March, 2019

Saudi's MSCI inclusion offers opportunity for large sellers to sell to passive money

Fadi Al Said is a portfolio manager/analyst within Lazard's Middle East and North African equity (MENA) team. He began working in the investment field in 1998. Prior to joining Lazard in 2014, Fadi was head of investments and portfolio manager for ING Investment Management Middle East. Previously, he was a senior fund manager in the Asset Management division at NBD Investment Bank, where he managed the two flagship funds (MENA Equities and GCC Balanced Funds). Prior to that, he worked at Noor Capital, where he was a senior vice-president heading up the Asset Management division. He also worked for Damac Invest as a senior portfolio manager, where he co-managed a multi-billion dirham portfolio invested in the MENA region. He was responsible for leading a team covering Saudi Arabia, Kuwait, UAE and other emerging markets. Prior to that, Fadi was the head of research at Al Jazira Bank in Saudi Arabia. He started his career working in the Arab Bank in Jordan. Fadi holds an MBA from Cass Business School (London City University) and a BSc in Economics from the University of Jordan.

Website: https://www.lazard.com/

Weekly Q&A: Fadi Al Said, CFA - Managing Director, Portfolio Manager/Analyst at Lazard Gulf Ltd

Image used for illustrative purpose.

Image used for illustrative purpose.

TADAWUL

Welcome to Zawya Markets. Each Sunday we will be featuring an interview with a different analyst or markets expert from around the region.

If you would like to participate please email gerard.aoun@refinitiv.com.

1) What are the biggest risk factors for MENA markets in the coming weeks/months?

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While it’s not easy to foresee any specific risk in this short timeline, I would have to say that the two main risks to the market are:

a- Global markets risks relating to international trade concerns and a slowing growth in global profitability

b- Regional risks in relation both to the geopolitical risk and commodity risk (oil price pressures)

2) What industry sectors look most promising and why?

We are not usually sector specific in our approach as we have a bottom-up approach. We might like a sector and not invest in it due to valuations, or not like it and invest because valuations are attractive. However, if I were to highlight some sectors, they would be country-specific. For example, in Egypt we foresee a positive outlook for consumer-related companies, especially in healthcare and education, in Saudi Arabia we like the long-term prospects of the insurance market and in the United Arab Emirates we think logistics and ecommerce have a favourable outlook.

3) Will the Saudi market rally keep on throughout 2019, in line with the MSCI inclusion?

Historically, and from previous market inclusions, it has been common to see a market rally pre-inclusion and then correction post-inclusion (buy the rumour, and sell the fact, as the old saying goes), especially after the event-driven hot money leaves, if it so decides. Some people argue that the size of expected inflow compared to the market might keep the market supported, which is understandable, but this also highlights the potential supply that might be unlocked to meet this demand, as this will represent a great opportunity for any large sellers to sell to passive money, which usually doesn’t look at valuation or price  - merely the closing price of the inclusion day. For us, we don’t position ourselves according to expected inflows or outflows. We invest in listed businesses that trade at valuations that are expected to generate at least our expected return - very boring and traditional!.

4) What are your views on UAE markets? Do you expect to increase/decrease your equity allocations in the next 3 months?

I think UAE markets have demonstrated to be a very contrarian market , as it tends to make surprising unextend moves as investors usually have a love hate relationship with UAE markets that tend to be extreme.

We entered the year with an overweight exposure to UAE markets driven by cheap valuations that in our opinion more than reflect the challenging conditions some of the sectors are facing in UAE.

5) What would be the main catalysts for UAE markets in 2019?

As we saw in some earnings announcements from some of the real estate developers, unexpected good results have resulted in a strong rally in the UAE market. Other important factors that might have a positive impact could relate to decisions relating to permanent residency (if any) and full foreign ownership rights (for onshore companies).

6) What is your view on Egypt? How successful have they been in their multi-year reform program? In which areas do you recommend investments?

While the reform plan had a slow start , it looks now like it’s gaining more traction, and we are monitoring the situation closely there. We believe valuations are attractive in Egypt selectively (as per the sectors previously mentioned).

7) What is your view on the Kuwaiti market?  Do you think the expected upgrade by MSCI would boost passive flow drive into the market? Has the segmentation of the Kuwaiti index in 2018 made it more attractive?

I have to say  I like the work the Capital Markets Authority and Boursa Kuwait has done, and is still doing, to the market. I think they are moving in the right direction to be the next market to be upgraded in the medium term.

(Editing by Gerard Aoun and Michael Fahy)

(gerard.aoun@refinitiv.com)

Any opinions expressed here are the author’s own.

If you would like to participate in the Zawya Markets Weekly Q&A please email gerard.aoun@thomsonreuters.com.

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