UAE markets are top choices: Rasmala

With rocky global stock markets causing heartburn for investors, many are casting a fresh eye at bourses in the region and their seeming insulation from the sub-prime crisis.
 

Khaled A Masri, a partner at Rasmala Investments, a regional investment bank headquartered at the Dubai International Financial Centre, spoke to Emirates Business about the bright prospects of local and regional markets. He also shared his top picks for stocks, favouring those leveraged to regional themes.

What are the prospects for regional stock markets?

For example, analysts feel markets like Oman, which were overlooked previously, seem a better bet now. Please comment.

I’m very bullish on the prospects for regional stock markets.

The current levels of valuations across most markets are very attractive in light of the economic and corporate profit growth across the region. Importantly, monetary policy is also very supportive as cheap currencies and negative interest rates are making markets even more attractive.

 

From being virtually absent from foreign investors’ radar screens, GCC markets are becoming an important building block in the so-called ‘frontier markets’ universe and I would call them ‘bric in the making’ in reference to the term [bric] coined to capture the opportunities in Brazil, Russia, India and China.

Oman has been the best performing regional market over the past few years. This has come about due to the relatively low levels of liquidity and free-float and the high demand from local retail and institutional investors.

 

We had heavily invested in Omani equities over the past few years as we found its valuations very attractive versus other GCC and emerging market stocks. With the huge rally over the past few years, we still look favourably upon this market but have moved to a more cautious stance as the valuation gap versus other markets has been all but eroded.

 

Nevertheless, Oman remains an interesting market that is well supported by Omani pension funds and other institutional investors, thus making it less volatile than other GCC markets.

 

How is the sub-prime crisis affecting the local stock market?

The direct effect is minimal as the vast majority of regional companies have little or no direct exposure to the worst-hit sectors of the United States mortgage market and related securities.

A few banks across the region have reported losses and provisioning against exposure to mortgage related securities, but the overall effect is manageable. The indirect effect of the crisis on our markets is a mixed bag.

 

 Positively, local and foreign investors are seeing our regional markets as a ‘safe haven’ from the turmoil in other global markets. The US policy response to the crisis in cutting interest rates to very low levels is another positive for our markets. 

 

On a less positive note, the effect of this crisis on investor sentiment has been leading to increased volatility in our regional stock markets.

 

We do not see any reason our markets should seek their cue from other global markets as the dynamics in our region could not be more different in terms of economic and corporate profit growth and the unleveraged state of the financial system.

 

Our view remains that any short-term increases in correlation is temporary and an anomaly and the region will continue to exhibit the extremely low correlation it has historically had to other financial markets around the globe.

 

LSE has chosen Qatar as its regional partner. What effect will this have on the Qatari market?

It will certainly increase the visibility of the market to international investors. The Qatari economy is emerging as the fastest growing economy in the world. The issue has been that there are precious few ways for regional and international investors to gain exposure to the exciting dynamics of this economy.

We look forward to more listings and relaxations of foreign ownership limits on leading stocks to give investors more choices and depth.

 

Local, government-owned companies are buying stakes in Nasdaq, LSE, etc. Will this have an impact on the regional markets?

The initial effect of these high-profile investments is that they have increased brand recognition for the region as a whole. The US, Dubai and the GCC in general have a much heightened and improved profile than they have historically had.

We detect this as we make presentations to clients based in those regions. The long-term effect is in the introduction of global know-how and best practices in regional bourses to aid them in their development in terms of regulations, governance and depth.

 

The DIFX remains a work in progress. The DP World listing unfortunately failed to provide the much-anticipated spark to invigorate this important project.

It will be important for this exchange to have such large and high-profile listings and even more important for these listings to be done in a transparent and well thought out manner to increase confidence in the exchange.

 

Which stocks do you feel will perform best in 2008?

We are most bullish on stocks that are leveraged to regional themes such as real estate, construction, consumption and certain financial stocks.

These sectors are not all well represented in their respective equity markets and we look forward to further listings of family and government-owned businesses to give us more ways to participate in these promising sectors.

 

Khaled A Masri joined Rasmala Investments after having served as the senior manager at the Investment Department of Riyad Bank.

 

Prior to that, Mr Masri had served as a Director in the Emerging Markets division of Sociéte Générale. He holds a BA in Finance from University of Delaware in the United States.