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Mideast funds more cautious toward equities, positive on Qatar Sep 28, 2017

Invest AD‘s Sachin Mohindra, portfolio manager, quoted in Reuters monthly asset managers survey.

Mideast funds more cautious toward equities, positive on Qatar

DUBAI, Sept 28 (Reuters) - Middle East funds on balance became more cautious towards regional equities over the past month but more positive towards Qatar, which had been hurt by sanctions imposed by other Arab states, a monthly Reuters poll shows.

Twenty-three percent of funds now expect to raise their allocations to Middle East equities over the next three months and none to reduce them, according to the poll of 13 regional fund managers, conducted over the past week.

The Gulf Cooperation Council "continues to offer some very attractive bottom-up stock-picking opportunities, with a number of companies making significant adjustments to their business models to keep pace with the new macro realities," said Sachin Mohindra, portfolio manager at Abu Dhabi‘s Invest AD.

But some managers have been disappointed by the failure of GCC stock markets to rise over the past month, despite a sharp rise in oil prices, with Brent crude hitting a 26-month high of $59.49 a barrel.

More expensive oil is good news for state finances in the Gulf, but many investors believe this will not be enough to avoid tough economic times in the region next year as governments continue austerity policies.

In particular, the GCC plans to introduce a 5 percent value-added tax, which will slow economic growth and could crimp corporate profit growth in 2018.

Index compiler FTSE will announce on Friday whether it has decided to upgrade Saudi Arabia and Kuwait to emerging market status; positive decisions, which many analysts think are likely, would eventually attract billions of dollars of fresh foreign money to those bourses.

Nevertheless, stock prices may already largely reflect good news from FTSE, and the markets‘ actual inclusion into its secondary emerging market index would probably only occur in late 2018. So the FTSE decision may not be a big factor in coming months.

The latest poll showed sentiment towards Qatar‘s stock market, which plunged as much as 17 percent after four neighbouring Arab states cut diplomatic and transport ties with Doha on June 5, has improved considerably.

Thirty-one percent of funds now expect to raise allocations to Qatari equities and 8 percent to decrease them, making Qatar, along with the UAE, the most positive market in the region. Last month, 38 percent expected to cut their allocations to Qatar and none to raise them.

The diplomatic crisis has cut Qatari banks off from some sources of foreign funding and disrupted shipping routes, raising the cost of imports; analysts see no clear sign of it ending any time soon.

Nevertheless, stock prices have now fallen so far that some regional funds appear willing to brave the political risk and buy Qatari equities, which offer attractive dividend yields at current levels.

"The Qatari market experienced a remarkable 11 consecutive days in the red during September. With valuations reaching distressed levels, this was followed by six days of gains as local and regional buyers rushed to take advantage," said Akber Khan, head of asset management at Al Rayan Investment in Doha.