TIDMGIF
RNS Number : 3783L
Gulf Investment Fund PLC
19 April 2018
Legal Entity Identifier: 2138009DIENFWKC3PW84
19 April 2018
Gulf Investment Fund plc ("GIF" or the "Company")
Q1 2018 Investment Report
Gulf Investment Fund plc (LSE: GIF), today issues its Q1 2018
Investment Report for the period 1(st) January 2018 to 31(st) March
2018, a pdf copy of which can be obtained from GIF's website at:
www.gulfinvestmentfundplc.com.
GIF seeks exposure to emerging investment opportunities and
positive fundamental factors in the Gulf Cooperation Council
("GCC") region that have not yet been priced in by the market. The
Company invests in quoted equities in the region as well as
companies soon to be listed. The Investment Adviser invests using a
top-down approach monitoring macro trends and identifying promising
sectors and companies in GCC countries.
The Gulf Cooperation Council comprises: Bahrain, Kuwait, Oman,
Qatar, Saudi Arabia and the United Arab Emirates.
GIF Quarterly Report
3 months ended 31 March 2018
Highlights
Ø In Q1 2018 the Gulf Investment Fund's (GIF) net asset value
(NAV) rose 6.5 per cent while the S&P GCC Composite Index
(S&P GCC), rose 6.1 per cent
Ø 3 cents per share dividend paid during the quarter
Ø Portfolio rebalancing underway
Ø Saudi Arabia now included in FTSE EM Index
Ø FTSE to upgrade Kuwait to emerging market in two tranches
Performance
GIF's NAV rose 6.5 per cent in the quarter. Since the investment
policy widened from Qatar focused to GCC focused on 7 December
2017, GIF's NAV per share rose 12.0 per cent and the S&P GCC
rose 9.1 per cent.
On 31 March 2018, the GIF share price was trading at an 18.2 per
cent discount to NAV.
Portfolio Rebalancing
The new investment policy adopted in December 2017 means the
Investment Adviser is now monitoring a broader universe of
investment opportunities across the Gulf Cooperation Council (GCC)
region comprising Saudi Arabia, Kuwait, UAE, Oman, Qatar and
Bahrain as GIF. During the quarter, the Investment Adviser
increased the proportion of the fund invested outside Qatar from 10
per cent to 42 per cent; adding holdings in Saudi Arabia and
Kuwait.
GIF is actively managed so weightings in different GCC markets
will depend on investment outlook and valuations of the GCC
economies. The current S&P GCC index weightings are: Saudi
Arabia (60.3 per cent), United Arab Emirates (14.4 per cent), Qatar
(10.5 per cent), Kuwait (10.6 per cent), Bahrain (2.3 per cent) and
Oman (1.8 per cent).
GGC Markets
The S&P GCC rose 6.1 per cent in the quarter, led by strong
performance by Saudi Arabia (up 8.9 per cent) on investors'
anticipation of its upgrade by FTSE and MSCI from frontier market
to emerging market status. Other GCC markets were more subdued,
especially Dubai (down 7.8 per cent) and Qatar (flat - post the
annual dividend payout).
Country Allocation
The weighting to Qatar (47.7 per cent of NAV) is still
significantly above that of the S&P GCC, reflecting the
Investment Adviser's view that Qatar trades at attractive
valuations compared to other GCC markets. GIF is now also
significantly invested in Saudi Arabian and Kuwaiti listed
companies (30.8 per cent and 5.6 per cent, respectively).
Reflecting the portfolio rebalancing the cash position was 10.3 per
cent at 31 March (31 December 2017: 5.1 per cent).
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: Country Allocation.
As of 31 March 2018, GIF had 42 holdings: 22 in Saudi Arabia, 12
in Qatar, 4 in the UAE and 4 in Kuwait (Q4 2017 - 20 holdings: 13
in Qatar, 5 in the UAE and 2 in Oman).
Portfolio
Top 5 Holdings
Company Name Country Sector % share of NAV
------------------------------ -------------- ------------ ----------------
Qatar Electricity & Water Co Qatar Utilities 8.5%
------------------------------ -------------- ------------ ----------------
Commercial Bank of Qatar Qatar Financials 7.6%
------------------------------ -------------- ------------ ----------------
Qatar National Bank Qatar Financials 7.6%
------------------------------ -------------- ------------ ----------------
Al Rajhi Bank Saudi Arabia Financials 5.6%
------------------------------ -------------- ------------ ----------------
Gulf International Services Qatar Energy 4.4%
------------------------------ -------------- ------------ ----------------
Source: QIC
The Investment Adviser took new positions, principally in Saudi
Arabian companies across a wide range of sectors, reflecting the
deeper and broader Saudi Arabian stock market. These included Al
Rajhi Bank (5.6 per cent of NAV), Co-op Insurance (3.8 per cent)
and National Bank of Kuwait (2.7 per cent).
Al Rajhi Bank is a leading Islamic bank in Saudi Arabia with a
strong brand name and a 17 per cent market share in financing and
deposits. With a focus on retail lending, it is set to benefit from
consumption growth and increasing interest rates.
Co-op Insurance (Tawuniya) is one of the leading Insurance
companies in Saudi Arabia with multiple distribution channels and
products. It enjoys market shares of 31.4 per cent in Medical &
Takaful, 15.0 per cent in motor insurance and 27.0 per cent in
property and casualty business.
National Bank of Kuwait is Kuwait's largest banking group with a
dominant market position in loans and deposits. It operates through
an international network covering the world's financial centers in
15 countries. The Bank is set to benefit from demand for credit
from Kuwait's development plans and from economic recovery in
Egypt.
All Saudi Arabian positions are held via P-Notes with
counterparties such as Bank of America Merrill lynch and EFG
Hermes.
Sector Allocation
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: Sector Allocation.
Financials is GIF's largest sector at 49 per cent of NAV. GCC
banks have strong balance sheets and government backing and should
benefit from resurgent infrastructure spending. Recent interest
rate rises should allow them to gradually reprice their loan
books.
The Investment Adviser invested in new sectors such as
petrochemicals and healthcare during the quarter. Recovery in oil
prices should spur growth of the petrochemical industry while
tighter demand supply dynamics should help pricing. The healthcare
sector is set for growth as a result of growing populations and
introduction of mandatory health insurance.
GCC Factors to watch
GCC nations are undergoing structural transformation, with
increasing focus on economic diversification, privatization,
capital market reforms and fiscal discipline.
The Saudi and the UAE governments were the first to introduce 5
per cent VAT from the beginning of 2018, while others are expected
to follow. Financial reforms such as the three-tiered market
segmentation of Boursa Kuwait reflect a move by GCC governments to
improve market participation and liquidity.
Saudi's Crown Prince Mohammed bin Salman has committed to wean
the Kingdom off dependence on oil. His economic programme includes
reducing subsidies, introduction of tax reforms and promoting
privatizations. We expect the impact of VAT and higher energy
prices, the expat dependent tax, an expat levy and the
'Saudization' of retail subsectors may dampen consumer spending and
economic activity. However, it should be to be partially offset by
the introduction of direct cash payments to low & medium income
households and increasing salaries for public-sector employees.
In March, Saudi Arabia saw US$1 billion of net inflows. The
promotion to Secondary Emerging market status by FTSE from March
2019 may trigger up to a further US$5 billion of inflows (source:
EFG Hermes). Several major listed firms in Qatar plan to raise
their foreign ownership limit (FOL) to 49 per cent. This should
encourage foreign investment. The rollout of VAT in UAE and growth
of its construction sector related to the upcoming Expo 2020 in
Dubai are expected to generate higher government revenues.
In Oman the start of gas production at Khazzan and the
introduction of VAT in 2018 should drive GDP growth. Bahrain
recently announced its biggest hydrocarbons discovery in 80 years.
Coupled with the oil price recovery this should help the island
boost its revenues.
The blockade of Qatar by Bahrain, Saudi Arabia, UAE and Egypt in
mid-2017 closed sea and air links, with bank lending also
restricted. Qatar responded by injecting deposits into the banking
system and established new trade routes. The recent US$12 billion
bond sale by Qatar was heavily oversubscribed, reflecting
confidence of international investors.
GCC Outlook
Qatar and UAE are already classified as emerging markets. Once
Saudi and Kuwait are included, the weighting of the GCC will amount
to 4.6 per cent of the emerging market index, larger than Russia or
Mexico (source: Deutsche Bank, FTSE, Bloomberg Finance LP,
QIC).
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: Expected Weight of GCC on the FTSE EM Index (after
inclusion of Saudi and Kuwait).
The IMF estimates GCC 2018 GDP growth of 2.2 per cent with
non-oil growth easing to 2.4 per cent. Over the medium-term,
non-oil growth is expected to be around 3.4 per cent.
The Investment Adviser sees growth in the GCC economies
accelerating over the coming years from stabilizing oil prices and
growth in the non-oil sectors. GCC markets underperformed global
markets since the oil fall in 2014. This is starting to change as
oil prices recovered. If GCC companies can weather near term
impacts of the many government reforms that are underway, this
underperformance should correct further.
The company news service from the London Stock Exchange
END
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