Mena markets are 'overweight'


The Middle East and North Africa (Mena) region remains overweight against a backdrop of strong macro-economic growth thanks to ongoing infrastructure programmes, robust corporate earnings and continuous efforts to open up to foreign investment, according to a Citigroup ranking model.

Markets that are rated overweight are regarded as offering better value than others.

"We still find plenty to like about Mena and these markets remain overweight within a Central Eastern Europe, Middle East and Africa (Ceema) portfolio," says Citigroup's mena equities report.

Mena earnings have grown at a decent rate over the past year resulting in higher valuations at a time when equity regions elsewhere in the world have de-rated.

The positive scenario is expected to continue as high oil prices shelter the region from many of the pressing concerns of slowing global growth, rising inflation and falling real incomes. Overall Mena has outperformed other regions over the past year. Earnings grew by 19.4 per cent in 2007, an improvement over the 15.7 per cent rate in 2006.

Furthermore, Mena has re-rated from a discount to a premium to global and emerging equity markets, the report says, adding that this premium could go even higher due to a combination of inflows, negative real interest rates and solid earnings growth.

"The UAE market in particular looks primed for a better performance in the second half following a recent weak run. Although we have tended to favour higher-growth Abu Dhabi stocks over Dubai, the latter is increasingly looking like a value play within the region."

The UAE, Qatar and Oman remain the top markets while Kuwait is upgraded to a preferred market.

Economic performance, however, has been worse than expected in Saudi, where a cut in oil production of five per cent last year had a negative impact on gross domestic product growth. Saudi's slowdown in turn has affected Bahrain. Caution is expressed about Morocco whose performance has been hit by a drought which caused the agricultural sector to contract by nearly 20 per cent.