Funds market upbeat as liquidity soars

After witnessing a quiet period in H2 2009, the funds market is showing signs of recovery, with new funds increasingly hitting the region enticed by an expectation of huge dormant liquidity in the market.

Giving a good start to 2010, eight funds have been launched in January, as against a total of six in the fourth quarter of 2009. With market players confident about the strength of the UAE economy, investors are showing increased interest in the funds market.

Taimur Saadat, Head of Technical Analysis at Arab Capital Markets Resource Centre, told Emirates Business: "The number of funds launched this year is quite encouraging and this will improve manifold in the second half of 2010. The offloading by foreign investors on the bourses since mid-October to date has lifted the funds in a big way. Another major reason for the boost in funds is the low deposit rate. Most short-term banks deposit rates are extremely low – in the range of 1 to 1.5 per cent."

Indicating the growing risk appetite, three equity funds have been launched in January followed by two money market funds, one each in the trade finance and IPO segments.

"Fund managers sitting on huge cash reserves had to park this somewhere, so they turned towards the funds market. The high liquidity and lack of investment options may lead to more mergers and acquisitions in the near future. I guess more M&As may take place in the financial and realty sectors," said Saadat.

Meanwhile, Zawya.com has carried out a ranking on the performance of funds in the region based on their returns to investors.

The top-10 funds in the region were Sico Khaleej Equtiy Fund, Al Islami GCC Equtiy Fund, Al Arabi Saudi Companies Fund, Al Razeen Riyal Fund, Al Rajhi Local Shares Fund, Commodity Trading Fund, Al Mal UAE Equity Fund, Markaz Gulf fund, Coast Investment Fund, Bank of Alexandria Fund-II and Credit Agricole Egypt Fund-I. The rankings are for the performance of funds during the third quarter of 2009.

"The one-quarter delay in the results is due to the delay in information disclosure of the fund management industry," Pamela E Chikhani, Vice-President for Funds Investment at Zawya, said in a monthly funds review carried out by Zawya.com

"Overall, the leading funds from Q2 carried their high rankings into Q3 and 10 out of the 11 maintained their leading positions. This is a healthy sign that demonstrates consistency in good fund management. Despite the financial crisis and below average performance, leading fund managers were able to maintain their high standards in comparison to their peers."

Saadat said: "Early this year, an Irish property fund with Dh90 million, which is the first real estate foreign fund this year, said it would increase the amount further. This is a good sign and will improve the sentiment in the market."

The DFM index was trading on a YTD change of 7.91 per cent. However, the P/E ratio is still attractive at 9.56, and holds promise of a strong upside and gains in the near future.

"The stock market is the best barometer as its is a pre-cursor of economic recovery. A stock market recovery is always a leading indicator of general economic recovery. I anticipate that a global economic recovery will be a reality in 2011," said Saadat.

The $100m HSBC Middle East Fund, and Daman Investment and Chinese Financial funds kick-started the investment binge in the region this year.

With ideal infrastructure, quality of credit and fundamentally strong markets, the UAE, Qatar and Saudi Arabia enjoy high confidence levels among investors in the funds market.

"Significant investment is expected in the funds market during the second half of this year. The economic fundamentals are promising for this. The UAE's infrastructure is very good for the industry and inflation is low at 3.5 per cent. We could expect good investment inflows," said Saadat.

This will be critical for the funds industry as the impact of rapid changes in the industry during the past five years continues to be reflected on the ground. The positive factor for investors would be a wide range of options, as there are now more choices than before.

The first half of 2009 witnessed the launch of 43 region-focused funds, compared to 39 in the first half of 2008.

Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.

Follow Emirates 24|7 on Google News.