TIDMGIF
RNS Number : 5560Q
Gulf Investment Fund PLC
22 October 2019
Legal Entity Identifier: 2138009DIENFWKC3PW84
22 October 2019
Gulf Investment Fund plc ("GIF" or the "Company")
Q3 2019 Investment Report
Gulf Investment Fund plc (LSE: GIF), today issues its Q3 2019
Investment Report for the period 1(st) July 2019 to 30(th)
September 2019, 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 30(th) September 2019
Highlights
Ø 6.5 per cent outperformance net asset value (NAV) +1.0 per
cent vs. benchmark -5.5 per cent
Ø So far in 2019 NAV is +17.9 per cent vs. benchmark +3.7 per
cent
Fund performance
Gulf Investment Fund (GIF) NAV 1.0 per cent in the quarter,
outperforming the fund's benchmark, the S&P GCC index, which
fell 5.5 per cent. So far in 2019 the NAV is up 17.9 per cent
against the benchmark's +3.7 per cent. This continues the
outperformance trend since the investment policy extended to
include the Gulf Cooperation Council (GCC) region in late 2017.
The funds outperformance during the quarter was attributed to
substantially lower exposure to Saudi Arabian market, which
performed negatively, while, relatively higher exposure to the UAE
market further supported the outperformance.
On 30 September 2019, the GIF share price was trading at a 9.1
per cent discount to the NAV (on 30 September 2018 the discount was
[15.3 per cent]).
GCC markets in 3Q19
Global markets were flat in the quarter as global growth
concerns were offset by further monetary easing in US and
Europe.
Gulf Cooperation Council (GCC) markets fell with the S&P GCC
index down 5.5 per cent, hit by weakening oil prices which were
down 8.7 per cent in the quarter. Drone attacks on Saudi oil
facilities undercut investor confidence while Kuwait's market was
dampened by the Emir's weakening health and elevated valuations.
However, market volatility in Saudi Arabia subsided towards the end
of September as authorities confirmed that the impact on the oil
production will be short lived.
During the quarter, Saudi Arabia was down 8.3 per cent, Kuwait
down 2.6 per cent, and Qatar down 0.8 per cent; partly offset by
gains in Dubai (up 4.6 per cent), Abu Dhabi (up 1.6 per cent), Oman
(up 3.4 per cent) and Bahrain (up 3.1 per cent). In the quarter we
saw the second and final phase of Saudi Arabia's MSCI inclusion as
an emerging market and the fourth phase of FTSE EM inclusion.
Portfolio structure
Country allocation
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: GIF Country Allocation as of 30 September 2019.
GIF's weightings in GCC markets is based on the Investment
Adviser's views of investments' outlook and valuations. Compared to
the benchmark, GIF remains overweight Qatar (32.1 per cent of NAV).
GIF's weightings in Saudi Arabia, UAE and Kuwait are 26.4 per cent,
22.4 per cent and 13.1 per cent respectively. During the quarter,
the investment advisor has made fresh investments in Oman (0.2 per
cent of NAV).
During the quarter, the investment adviser increased exposure to
the UAE market by 6.9 per cent from 15.5 per cent in previous
quarter, as a result, fund's cash position stood at 5.9 per cent of
NAV as at 30 September 2019 (30 June 2019: 13.9 per cent).
As of 30 September, GIF had 54 holdings: 25 in Saudi Arabia, 9
in Qatar, 7 in the UAE, 11 in Kuwait and 2 in Oman (vs. 48 holdings
in 2Q19: 27 in Saudi Arabia, 8 in Qatar, 5 in the UAE, 8 in Kuwait
and 0 in Oman).
Top 5 Holdings
Company Country Sector % share of GIF NAV
Emirates NBD UAE Financials 11.2%
--------- ------------- -------------------
Qatar Gas Transport Qatar Energy 9.0%
--------- ------------- -------------------
Commercial Bank of Qatar Qatar Financials 5.7%
--------- ------------- -------------------
Qatar Navigation Qatar Industrials 4.9%
--------- ------------- -------------------
Alafco Aviation Lease and Finance Kuwait Industrials 3.8%
--------- ------------- -------------------
Source: QIC
Emirates NBD (ENBD) and Qatar Gas Transport Co. (QGTS) continued
to remain GIF's top holdings.
Emirates NBD, a leading UAE bank with c.20 per cent market share
of UAE's loans and deposits has strong capital buffers to weather
economic challenges and tough regulatory requirements. The bank is
also well placed to fund organic growth and its international
expansion strategy through its capital-generative core
business.
QGTS is a leader in energy transportation, with the world's
largest Liquified Natural Gas (LNG) carrier fleet in operation.
This comprises 74 vessels including 69 LNG vessels, 4 LPG vessels
and 1 floating storage regasification unit FSRU vessel. QGTS is
well placed to benefit from increased transport demand arising from
the Qatar's North Field expansion plan.
The Investment Adviser increased the holding in Qatar
Navigation, one of the key beneficiaries of Qatar's North Field
expansion. The holding in ALAFCO Aviation Lease and Finance Co.
ALAFCO increased. ALAFCO is a global aircraft leasing company which
is positioned to meet the needs and demands of world airlines,
given the preponderance of newer aircraft in its fleet.
Sector allocation
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: GIF Sector Allocation as of 30 September 2019.
Financials remains GIF's largest sector allocation, making up
37.5 per cent of the fund. However, this has decreased from 40.4
per cent in 2Q19, as the Investment Adviser reduced holdings and
took profits. Valuations for the GCC banking sector looked
stretched during the quarter, as a result, the investment advisor
tactically reduced exposure to the sector. Moreover, recent rate
cuts could impact profitability of banks due to margin compression.
However, in medium term, lower interest rates are expected to
support private sector credit growth and overall credit demand in
the region.
The consumer sector remains the second largest sector at 13.2
per cent. The long-term outlook of the sector remains good, thanks
to an increasingly young and working age population and growth in
tourism and per capita income. Saudi government initiatives such as
allowances for public sector employees, continuation of the
citizen's account programme (cash transfers deposited directly in
the accounts of the beneficiary citizens) to support low income
families should help boost consumer spending.
Holdings in Energy and Industrials sectors stood at 12.7 per
cent and 11.0 per cent vs. 12.3 per cent and 8.7 per cent in 2Q19,
respectively. The Investment Adviser substantially increased
exposure to the Materials sector to 11.2 per cent from 0.8 per
cent, as valuations were attractive.
Investments in the Communication Services, Utilities and
Healthcare sector were reduced while holdings in the Real estate
sector were increased.
Aramco IPO Is Finally Ready to Go
Three years after its first announcement in 2016, Saudi Arabia
is now set to endorse the plans of listing Aramco shares on the
domestic stock exchange, Tadawul, as soon as November 2019. In the
first phase, officials are planning to list as much as 3 per cent
of the company. Domestic listing is the priority for now, although
one on an international exchange may follow.
Aramco IPO is a centrepiece of the Saudi's economic
diversification plan, with the government targeting valuation of
US$2 trillion. If the desired valuation is achieved, the proposed 5
per cent dilution could bring as much as US$100 billion which could
be utilised for proposed development plans, aimed at weaning
economy off its reliance on oil.
GCC Economic Update 3Q19
During the quarter, the US Federal Reserve cut interest rates
twice. Most GCC central banks mirrored this move in order to
maintain their currency pegs. The investment adviser expects lower
interest rates in some GCC countries to support economic growth
amid headwinds from slower global trade, oil market uncertainty,
and regional geopolitical risks.
According to the IMF, non-oil GDP growth in Saudi Arabia is
expected to strengthen to 2.9 percent in 2019 supported by higher
government spending and rising confidence, but real GDP growth is
projected to slow down to 1.9 percent as hydrocarbon production
growth slows to 0.7 percent as the OPEC+ agreement takes effect.
Growth is expected to pick-up over the medium-term as reforms take
hold. The unemployment rate among Saudi nationals has declined,
though it remains at 12.5 percent. Credit growth is expected to
strengthen as a result of greater investments into non-oil markets
and increased liquidity in the banking system.
With soft oil prices and elevated spending, Saudi Arabia's
fiscal deficit is expected to widen to 6.5 per cent of 2019 GDP,
requiring tighter control of public finances.
Saudi Aramco was subject to an attack on 14-September where it
lost production capacity equivalent to approximately 50 percent of
total production. This incident raised supply concerns and spiked
crude prices. However, the concern was short-lived as official
announcements assured that production was to resume within a few
days which sent the crude prices back to its pre-attack range.
During the quarter, Saudi Arabia decided to waive fees on
expatriate workers borne by companies in the industrial sector,
after businesses voiced concern over higher operating costs, though
fees on expatriate dependents will continue. Moreover, Saudi Arabia
is expected to end the use of expatriate workers in its hospitality
sector by year-end.
The UAE central bank adjusted its growth projection for 2019
from 2.0 per cent to 2.4 per cent driven by a jump in oil sector
growth to 5.0 per cent from 2.8 per cent. Meanwhile, non-oil growth
projections were lowered to 1.4 per cent from 1.8 per cent.
The UAE and China signed a series of strategic agreements in a
bid to strengthen economic ties. The agreements included a
partnership between the Abu Dhabi National Oil Company (ADNOC) and
China National Offshore Oil Company (CNOOC) in relation to upstream
exploration and development, oil refining and LNG trade.
The UAE will start applying excise tax of 100 per cent and 50
per cent on electronic smoking products and sweetened drinks
respectively, starting January 2020.
Abu Dhabi issued US$10 billion in bonds, the first issuance in
two years, which took advantage of low rates.
Kuwait was named as one of the Top 20 'improvers' in the World
Bank's Ease of Doing Business index for 2020, based upon
performance across ten categories that include the ease of starting
a business, paying tax, trading across borders, and enforcing
contracts.
Qatar's PMI numbers signaled increased growth in its
non-energy-linked economy. The PMI rose sharply to 49.0 in
September from 46.4 in August. The overall rise of 3.8 points in
last two months is the largest observed since September-October
2017. The three main components of the PMI, new orders (+0.7),
output (+0.9) and employment (+0.7) posted steeper gains. Many
companies highlighted new projects and work related to the 2022
World Cup as a source of demand for new business. The September
Future Activity Index surged to its highest in 2019 and the second
highest on record.
Bahrain marked its return to the international debt markets
during the quarter, raising US$2 billion from a US$1 billion sukuk
due in 2027 with a yield of 4.5 per cent and a US$1 billion
conventional bond maturing in 2031 at 5.625 per cent. Bahrain is
rated non-investment grade by major rating agencies, but the US$10
billion GCC aid package announced last year and public reform
efforts have helped boost investor confidence.
Outlook
Growth in the region is expected to improve to 2.1 per cent in
2019, up from 2 per cent in 2018 (source: IMF estimates).
Government spending and multi-year infrastructure plans will likely
support economic activity in Kuwait and Saudi Arabia, while the
Dubai Expo 2020-related spending in Dubai, and Abu Dhabi's stimulus
plan are expected to support growth in the UAE. In Qatar, the
beginning of the Barzan Gas Project operations will boost oil
growth; however, non-hydrocarbon growth is projected to be moderate
in Q419.
With large investments anticipated over the next few years, the
Investment Adviser expects to see increasing opportunities in
banking, infrastructure and industrials. The key risk remains the
direction of oil prices. If these drop further, GCC governments
will start to limit spending, undercutting growth. The Investment
Adviser remains optimistic as to regional growth, buoyed by planned
infrastructure projects and the momentum of social as well as
economic reforms.
This information is provided by RNS, the news service of the
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END
UPDGCBDGLUDBGCB
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