Arqaam Capital, the specialist emerging and frontier markets Investment Bank, today inaugurates its fifth MENA Investors Conference in Dubai against the backdrop of increasing geopolitical tensions, normalization of global monetary policies, and the start of Emerging Market fund outflows.

Speaking on the sidelines of the conference, Tarek Lotfy, President, GCC at Arqaam Capital said: “GCC equity markets have only been slightly affected by the Emerging Markets financial turmoil, supported chiefly by index inflows (USD 1bn in Kuwait, USD 1.5bn into Qatar) and a 7 phase inclusion of KSA into FTSE and MSCI combined next year. This event is still significantly underplayed in our view, although it has been reflected in the stock markets, with the MSCI Arabian Markets index up 5% year to date as opposed to the EM index that is now down 11%.”

“The economic outlook for the GCC remains relatively insulated, with oil prices firm on supply disruptions (Libya, Venezuela, Iran), despite production increases in KSA and Kuwait. Fiscal austerity across the GCC has fully come to a halt, with fiscal accounts in either low single digits (Saudi) or in positive territory (Kuwait, Qatar and UAE). Recent data is encouraging and is showing a pickup in growth across the region, highlighted mostly by more timely data out of Saudi showing a recovery in GDP growth as well as retail sales.”

Wafic Nsouli, Managing Director, Equities, Arqaam Capital commented: “The past year has resulted in strong dislocation in some of the MENA markets, particularly in the UAE, with some deep value stocks now available to investors. In addition, index country classification changes and rebalances are expected to continue to be a key theme going into the next 12 months. The Kuwait FTSE EMinclusion is currently underway and the Saudi MSCI and FTSE EM inclusion events are set for 2019 and are expected to bring in c.USD 60bn of combined active and passive money into the country. This should bring down equity risk premiums, coupled with the potential tightening in bond spreads that could result from the GCC bond inclusion into the EM benchmark, which is currently up for review.”

“Although risks globally are tilted on the downside, we see strong thematic stories worth playing in the region. As a case in point, GCC banks remain amongst the best positioned globally for rising US rates and have balance sheets that are strongly geared to benefit from the upcoming monetary cycle. On a different note, Saudi government reforms have continued and focus on increased privatization in the healthcare sector and improved enforcement of insurance policies, paving the way for some attractive investment opportunities in these sectors in the medium term, despite continued expat exodus.”

Jaap Meijer, Managing Director, Head of Equity Research, Arqaam Capital added: “Having said all that, we see vulnerabilities with twin deficits in Bahrain, Lebanon and Egypt, leaving very limited room for policy mistakes. Bahrain will need to iron out the details of the financing package from the other GCC countries and reduce its fiscal break-even levels. The Lebanese government needs to start working on halving its fiscal deficit much more swiftly. Finally, with higher rates potentially pressuring the overall budget of Egypt for longer than previously expected, fiscal policy should remain tightly managed.”