TIDMGIF
RNS Number : 6233U
Gulf Investment Fund PLC
16 July 2018
Legal Entity Identifier: 2138009DIENFWKC3PW84
16 July 2018
Gulf Investment Fund plc ("GIF" or the "Company")
Q2 2018 Investment Report
Gulf Investment Fund plc (LSE: GIF), today issues its Q2 2018
Investment Report for the period 1(st) April 2018 to 30(th) June
2018, 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 June 2018
Highlights
Ø Gulf Investment Fund's (GIF) net asset value (NAV) +5.4 per
cent, S&P GCC Composite index (S&P GCC) +3.6 per cent
Ø Saudi Arabia joining MSCI EM index from May 2019
Ø US$3.4 billion already attracted to Saudi in anticipation of
MSCI and FTSE inclusion
Ø OPEC expected to increase supply by 1 million barrels per
day
Performance
GIF continues to outperform its benchmark.
GIF's NAV rose 5.4 per cent in the quarter. So far in 2018,
GIF's NAV is up 12.3 per cent whilst the S&P GCC index rose 9.8
per cent. Since the investment policy widened from Qatar focused to
Gulf Cooperation Council (GCC) focused in December, GIF's NAV is
21.7 per cent higher and the S&P GCC 13.0 per cent higher.
On 28 June 2018, the GIF share price was trading at a 15.3 per
cent discount to NAV.
GGC Markets
Saudi was the best performing market over the quarter, largely
because investors looked ahead to its inclusion in EM indices.
Dubai lagged the region, amid concerns about its Real Estate &
Construction sector. Other GCC Markets had mixed performance.
Year to date the S&P GCC has gained 9.8 per cent while
emerging markets generally have fallen (MSCI EM index is down 7.7
per cent).
Country Allocation and Portfolio Rebalancing
Under the Gulf-wide investment policy the Investment Adviser is
monitoring a broader universe of investment opportunities across
the Gulf Cooperation Council region comprising Saudi Arabia,
Kuwait, UAE, Oman, Qatar and Bahrain. During the quarter, the
Investment Adviser changed the proportion of the fund invested
outside Qatar from 42 per cent to 59 per cent; adding holdings in
Saudi Arabia, the UAE and Kuwait.
GIF is actively managed so weightings in different GCC markets
will depend on investment outlook and valuations of the GCC
economies. GIF remains overweight Qatar (36.7 per cent of NAV), as
Qatar trades at attractive valuations compared to other GCC
markets. Holdings in Saudi, Kuwaiti and the Emirati companies were
39.2 per cent, 10 per cent and 9.6 per cent of the fund,
respectively. Reflecting the portfolio rebalancing, 4.5 per cent of
the fund was in cash as at 30(th) June (1Q18: 10.3 per cent).
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: Country Allocation.
GIF has 43 holdings: 24 in Saudi Arabia, 9 in Qatar, 5 in the
UAE and 5 in Kuwait.
Portfolio
Top 5 Holdings
Company Name Country Sector % share of NAV
Commercial Bank of Qatar Qatar Financials 9.7%
-------------- ------------ ---------------
Qatar Gas Transport Qatar Energy 8.4%
-------------- ------------ ---------------
Qatar Electricity & Water Co Qatar Utilities 7.8%
-------------- ------------ ---------------
Al Rajhi Bank Saudi Arabia Financials 5.1%
-------------- ------------ ---------------
National Bank of Kuwait Kuwait Financials 4.1%
-------------- ------------ ---------------
Source: QIC
The stake in Qatar Gas Transport Companies was increased (8.4
per cent of NAV vs. 3.3 per cent in 1Q18) as valuations look
attractive. Additionally, Investment Adviser expects Qatar's North
Field expansion plan paves the way for increased transportation of
gas, which may benefit the Company in the longer run. Holdings in
Qatar National Bank and Qatar Islamic bank were sold tactically to
take advantage of sharp share price increases as their respective
weights in EM indices were increased.
The Investment Adviser took new positions primarily in the
Materials sector including National Petrochemical (1.4 per cent of
NAV) and Yanbu National Petrochemical (1.4 per cent). Other new
holdings include Kuwait International Bank (2.0 per cent).
Sector Allocation
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: Sector Allocation.
Financials is GIF's largest sector at 46.4 per cent of NAV. GCC
banks have strong balance sheets and government backing and should
benefit from resurgent infrastructure spending. Recent interest
rate rises should allow them to gradually reprice their loan
books.
The Investment Adviser increased allocation to Energy (14.0 per
cent), Materials (8.7 per cent) and Real Estate (8.2 per cent).
Recovery in oil prices should spur growth of the Energy and
Materials industry while tighter demand should help pricing. Rising
population, investment in infrastructure and regulatory reforms
should stimulate growth in the Real Estate sector.
GCC diversification and recovering oil prices
GCC nations are encouraging private sector participation and
improving the efficiency and transparency of the public sector.
Investor friendly regulations are being adopted, such as
allowing 100 per cent foreign ownership of businesses, and 10-year
residency visas in the UAE.
Social reforms such as Saudi women being permitted to drive and
set up their own businesses will stimulate female participation in
the economy. This should boost job creation and consumer spending,
potentially benefitting sectors such as Services, Automobile and
Insurance.
Stronger oil prices this year have bolstered the reserves of GCC
nations, facilitating fiscal reforms and helping their spending
programs. The IMF reduced its estimate for this year's GCC fiscal
deficit to 3.6 per cent of GDP (October 2017: 5.0 per cent of GDP),
and expects a 2019 deficit of 2.2 per cent.
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: GCC Fiscal Balances to Improve in 2018 & 2019 With
Rising Oil Prices
In June, major global oil producers agreed to increase crude
output from July. However, oil prices moved higher on uncertainties
over how much of the increase will materialize, concerns about
dwindling spare production capacity and rising global demand.
Economic growth in the region is expected to accelerate in 2018-19,
largely reflecting the continued recovery in oil prices and slowing
pace of fiscal consolidation.
The IMF has estimated aggregate growth for the region at 1.9 per
cent and 2.6 per cent for 2018 and 2019, respectively.
Saudi Arabia's production increase should boost growth in its
oil sector, adding nearly 2 per cent to GDP growth. Non-oil growth
is expected to pick up as reforms take a back seat and focus shifts
towards implementation of megaprojects. Current mega projects
include the Grand Mosque Redevelopment (US$26.6 billion),
development of Riyad and Jeddah Metro transit system (US$34.5
billion) and Expansion of King Abdulaziz Int'l Airport (US$7.2
billion). Upcoming mega projects include the US$500 billion NEOM
Mega City, King Abdullah Economic City (US$100 billion) and
commissioning of world's largest Solar project (US$200
billion).
In June 2018, Fitch Ratings revised Qatar's Outlook to "Stable"
from "Negative" stating that Qatar has successfully managed the
effect from last year's blockade by reconfiguring supply chains and
injecting public sector liquidity. The IMF expects Qatar's real GDP
growth to quicken to 2.6 per cent in 2018 from 2.1 per cent in
2017, with the economy benefitting from continued infrastructure
investment, a slower pace of fiscal consolidation and the scaling
up of LNG production.
Kuwait delayed implementation of VAT until 2021 and the
Investment Adviser expects it has little immediate need for fresh
revenues at the current oil price. Kuwait is expected to report a
fiscal surplus for 2018 and 2019 at 7.0 per cent and 6.1 per cent
of GDP, respectively.
The UAE government eased visa and investment rules to attract
new businesses. Experts in medical, scientific, research and
technical fields as well as top students will be able to get a
residency of up to 10 years.
Dubai unveiled various plans to stimulate foreign investment.
These plans include the reduction and cancellation of some
government fees to support investors' ability to do business. Dubai
Municipality fees and those related to investment in the aviation
sector will be lowered.
To benefit from the higher oil price environment and encourage
economic growth, the Abu Dhabi government approved a 3-year AED50
billion (US$13.6 billion) economic stimulus program. The
authorities intend to make it easier to do business, spur
employment growth and increase tourism.
In April, the Central Bank of Oman eased capital and credit
exposure rules in an effort to boost economic growth. The most
prominent measure was the reduction in the capital adequacy ratio.
This should free up close to OMR2.6 billion to stimulate credit
growth.
MSCI EM Inclusion
Saudi Arabia's inclusion in the MSCI EM index from May 2019
brings its US$500 billion stock market to a wider group of
international investors. It could trigger US$40 - US$45 billion of
inflows.
MSCI also added Kuwait to its 2019 watch list for a potential
upgrade to EM, with the decision to be announced next June, further
bringing GCC nations under the investment radar of global
investors.
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: Future Potential of GCC on the MSCI EM Index
These developments would also have a positive impact on the
broader region. In addition to increased foreign inflows, the
intangible benefits of attracting newer set of sophisticated
investors should result in improved standards of financial
disclosure and corporate governance.
GCC Outlook
The GCC nations are adapting to changing global economic
conditions, but challenges remain, including relatively high local
unemployment in certain states, a heavy reliance on expatriate
workers, and the ongoing dependency on the government sector to
drive growth.
Diversification and reducing the budget deficits are positive
developments. If GCC companies can weather the near-term impacts of
the many government reforms that are underway, they could
outperform global peers in the near to medium term.
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END
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