TIDMGIF
RNS Number : 1840O
Gulf Investment Fund PLC
28 January 2019
28 January 2019
Gulf Investment Fund plc ("GIF" or the "Company")
Q4 2018 Investment Report
Gulf Investment Fund plc (LSE: GIF), today issues its Q4 2018
Investment Report for the period 1(st) October 2018 to 31(th)
December 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 31(st) December 2018
Highlights
Ø For the quarter, net asset value (NAV) -2.0 per cent; S&P
GCC Composite index (S&P GCC) -1.3 per cent
Ø Dividend of 3 cents per share paid in the quarter
Ø For 2018, the NAV was up 8.4 per cent, versus S&P GCC up
8.2 per cent
Ø Since the investment policy widened in December 2017, Gulf
Investment Fund (GIF) NAV rose 17.5 per cent; S&P GCC rose 11.4
per cent
Ø Budgets of many GCC countries increasing
Performance
GIF monitors its performance against the S&P GCC index and
continues to outperform this index.
GIF paid a dividend of 3 cents per share in the quarter,
contributing to a NAV fall of 4.4 per cent in 4Q18. Adjusting for
the 3 cents dividend, the NAV for the quarter would have decreased
by 2.0 per cent. For 2018, the NAV was up 8.4 per cent (after
dividend payment), ahead of the S&P GCC index which was up 8.2
per cent. Adjusting for the dividend, the GIF NAV for 2018
increased by 11.2 per cent and the S&P GCC total return was
12.8 per cent. Since the investment policy widened to the Gulf
Cooperation Council (GCC) focus in December 2017, NAV rose 17.5 per
cent (after dividend payments), while the S&P GCC rose 11.4 per
cent.
On 31 December 2018, the GIF share price was trading at a 11.8
per cent discount to NAV.
GIF was included in Citywire Investment Trust Insider's Top Ten
Investment Trusts for 2018 and Investment Week's Top 15 Investment
Trusts for 2018.
GCC Markets in 4Q18
A steep decline in oil prices during the quarter (Brent oil
price was down 35 per cent) led to a mixed performance for GCC
markets. Qatar (up 4.9 per cent) continued to outperform other GCC
markets, all of which were down for the quarter.
GCC outperformed in 2018
In 2018, Qatar equities rose 20.8 per cent, helped by confidence
amongst foreign investors, followed by Abu Dhabi (up 11.7 per
cent), Saudi Arabia (up 8.3 per cent) and Kuwait (up 5.2 per cent).
Dubai and Oman were the major losers, falling 24.9 per cent and
15.2 per cent, respectively.
The region bucked the emerging market trend in 2018, with the
S&P GCC Composite index rising 8.2 per cent while the MSCI
Emerging Markets index fell 16.6 per cent, an outperformance of
24.9 per cent. Major developed and emerging global indices posted
negative returns.
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: GCC markets and global indices.
Easing of restrictions on foreign ownership limits in Qatar,
reclassification to the EM index in Saudi Arabia and improving
macro fundamentals helped in driving the GCC markets higher.
Additionally, sturdy US dollar pegs, low debt levels, and robust
foreign reserves reduced risk and shielded the region from the
emerging market contagion, making GCC an attractive investment
destination for global investors.
For 2018, Qatar topped net foreign inflows (+US$2.5 billion)
followed by Saudi Arabia (+US$1.6 billion), Kuwait (+US$927
million) and Abu Dhabi (+US$760 million), while Dubai saw its first
net foreign outflows since 2011 (-US$258 million).
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: GCC Net Foreign Flows 2018.
Upcoming EM index inclusions in 2019 would keep GCC markets in
focus. While the EM inclusion of Saudi Arabia is expected to drive
c.US$16 billion (starting 15 March) of passive inflows, Kuwait is
also a potential for reclassification to EM within MSCI (June 2019
decision).
Portfolio Structure
Country Allocation
GIF's weightings in GCC markets is based on the Investment
Adviser's views on the investment outlook and valuation. GIF
remains overweight (compared to the benchmark) on Qatar (37.9 per
cent of NAV) because of Qatar's strong macro-economic backdrop.
GIF's weighting to Saudi, Kuwaiti and UAE were 44.0 per cent, 8.5
per cent and 8.3, respectively. Cash decreased to 1.3 per cent of
NAV as at 31 December (30 September: 7.7 per cent). Reduction in
cash was due to the payment of the dividend distribution and
rebalancing of the portfolio. The Investment Adviser increased
holdings in the Financial (+7.7 per cent) & Consumer sectors
(+3.8 per cent) and made new investments in the Healthcare sector
(+2.2 per cent).
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: Country Allocation.
As at 31 December, GIF had 42 holdings: 23 in Saudi Arabia, 11
in Qatar, 4 in the UAE and 4 in Kuwait (vs. 38 holdings in 3Q18: 16
in Saudi Arabia, 13 in Qatar, 4 in the UAE and 5 in Kuwait).
Following the change in the investment policy, the Investment
Adviser increased the proportion of the fund invested outside Qatar
from 10 per cent (end December 2017) to 61 per cent (end December
2018). The Investment Adviser took new positions, principally in
Saudi Arabian companies, across a wide range of sectors.
Portfolio
Top 5 Holdings
Company Country Sector % share of GIF NAV
Qatar Gas Transport Qatar Energy 8.4%
-------------- ------------ -------------------
Al Rajhi Saudi Arabia Financials 6.3%
-------------- ------------ -------------------
Commercial Bank of Qatar Qatar Financials 6.0%
-------------- ------------ -------------------
National Commercial Bank Saudi Arabia Financials 5.7%
-------------- ------------ -------------------
National Bank of Kuwait Kuwait Financials 4.0%
-------------- ------------ -------------------
Source: QIC
The Investment Adviser continues to be positive on Qatar Gas
Transport Company as the company is well placed to benefit from
increased transport demand from Qatar's 'North Field' gas field
expansion. National Commercial Bank and Al Rajhi Bank remain among
the top 5 holdings as these banks should benefit from rising
interest rates and credit demand. Holdings in Commercial Bank of
Qatar and National Bank of Kuwait were reduced as the Investment
Adviser believes valuations are stretched.
Sector Allocation
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: Sector Allocation.
The Investment Adviser increased holdings in the Financials
sector to 55.2 per cent from 47.6 per cent in 3Q18, mainly through
making a new investment in Doha Bank (+3.8 per cent) and increasing
investment in Qatar Int'l Islamic Bank (+3.0 per cent). GCC banks
have strong balance sheets & government backing. Credit growth
is expected to recover as government spending underpins economic
activity and spurs private-sector growth. Pressure on profitability
should ease as banks have adapted their cost base to the slowing
economic environment, and as ongoing consolidation in the sector
takes effect.
The Investment Adviser reduced exposure to the Materials and
Energy sectors to 9.9 per cent and 12.5 per cent, down from 13.2
per cent and 14.6 per cent respectively. The near-term outlook for
these sectors has been affected by the recent oil price fall and
ongoing trade war concerns.
Holdings in the Utilities and Real Estate sectors were also
reduced, while the Investment Adviser increased holdings in the
Healthcare and Consumer sectors by 2.2 per cent and 3.8 per cent
respectively. The Investment Adviser took new positions in the
Healthcare sector which the Investment Adviser believes is set for
growth as a result of growing populations and introduction of
mandatory health insurance. Despite the recent slowdown, the
long-term outlook of the GCC Consumer sector remains strong thanks
to favorable demographics and a strong growth trajectory in tourism
and per capita income.
GCC Governments Set to Maintain or Increase Spending In 2019
Since peaking in early October, oil prices dropped 35 per cent
in late 2018, as fears receded of a supply shortage caused by US
sanctions on Iran, record high US crude production and a weaker
global economic outlook. The US decision to extend waivers to eight
of Iran's largest customers, including China, India, Japan and
South Korea, added to the bearish narrative. Despite this, GCC
sovereigns continue to chart expansionary fiscal plans for 2019
with the continued fiscal reforms.
Saudi Arabia unveiled its largest ever budget of US$295 billion
for 2019, supporting the non-oil economy through private sector
stimulus, austerity-mitigating social allowances and productive
infrastructure investments. Expenditure is set to rise by 7.4 per
cent over 2018 and tax revenue by 9 per cent. The deficit is
expected to narrow to 4.2 per cent of GDP from 4.6 per cent in
2018.
The Investment Adviser believes that Saudi Arabia's expansionary
budget is positive for the non-oil economy, but expenditure
expectations may have to be pared back as revenue projections are
based on an optimistic oil price expectation of US$75-80 a barrel.
Saudi is seeking to spur stronger growth while maintaining the goal
of balancing the budget. Better oil prices and exports of crude
could help the Saudi achieve both objectives.
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: Saudi Arabia Budget 2019
Qatar is expected to enjoy a US$1.2 billion surplus in 2019 as a
result of higher energy prices in international markets along with
increasing non-oil revenues. Revenue this year is anticipated to be
20.5 per cent ahead of the US$48.1 billion budgeted in 2018.
Spending on major projects in Qatar, which accounts for 43.3 per
cent of total spending, is expected to decline by 3.6 per cent as a
result of the completion of infrastructure projects relating to
FIFA 2022. Spending on salaries and wages are set to increase 9.4
per cent to meet increased demand for staff across different
sectors, including education, healthcare, security and defence. In
2019, US$13.2 billion of new projects are expected to be awarded
out of a portfolio of committed projects worth US$115.7 billion.
These new projects will boost economic growth in the country,
especially in the non-oil sector.
The UAE cabinet approved a balanced federal budget of US$16.4
billion for the 2019 fiscal year, which is 17.3 per cent higher
than 2018 and the nation's highest on record. In 2019, Dubai
maintained the pace of spending at 2018 record levels, with a focus
on the development of infrastructure, aviation and tourism sectors
- all of which are vital to the emirate's non-oil growth.
Dubai's budget for FY19 has been formulated keeping in mind the
expected population growth, benefits of hosting Expo 2020,
continuous development of infrastructure and objectives of Dubai
Plan 2021. IMF has forecasted Dubai's GDP to grow 4.1 per cent in
2019 due to government infrastructure spending ahead of Expo 2020,
compared to 3.3 per cent in 2018.
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: GCC governments spending in 2019
Oman charted a 3 per cent rise, bringing spending up to US$33.5
billion with a lower deficit of US$7.3 billion.
Qatar - Recent initiatives and Outlook Post FIFA
Qatar has bounced back from the blockade imposed in June 2017 by
neighboring countries. The Qatari economy rebalanced, as supply
chain disruptions recovered rapidly following the blockade by
establishment of new trade routes. Banks adjusted their "funding
profile" with the reduced liquidity from Gulf Cooperation Council
sources offset by inflows from government and related entities. The
nation enacted measures to bolster investments, such as allowing
rise in foreign ownership.
The amended law on FDI is a key development to come out of the
blockade, focusing on the industrial, agricultural, information
technology, education, health and tourism sectors. Qatar has
allocated US$3 billion to attract foreign companies to its free
zones and an additional US$2 billion to draw multinationals to its
financial center.
Since the blockade, Qatar has implemented policies to boost its
tourism and real estate sector. The cabinet approved a new law
allowing foreigners to own property in Qatar and introduced a range
of visa facilitation measures, including allowing nationals of some
88 countries to enter Qatar visa-free and free-of-charge.
Qatar is supporting a number of private-sector initiatives to
make the economy self-sufficient in the areas of food production,
logistics and manufacturing to ensure long-term economic
sustainability. Transportation and logistics firms are already
benefiting from the increase in the volume of trade arriving
directly at Qatar's new Hamad Port.
Qatar plans to add another LNG train to the three already
announced and boost the LNG capacity by 43 per cent to retain its
position as the world's largest LNG exporter. Robust demand and low
break-even costs will help Qatar benefit from the additional
capacity, which should come on-line by 2024.
LNG expansion should provide a positive boost to Qatar's GDP
growth throughout the 2020s. North Field expansion requires
considerable investment, which is expected to drive growth after
the completion of the World Cup stadiums and associated
infrastructure. In addition to expanding LNG production, several
large projects will continue after the 2022 World Cup, including
expansion of Qatar integrated rail and Hamad Port and the Lusail
"smart city," which aims to become one of the world's most
technologically advanced cities.
If Qatar can seize the opportunities presented by a booming
economy in the 2020s, its 2030 vision of a knowledge-based economy
may actually become one step closer to reality.
Other developments in the Region: Contracts, Policy and
Regulation
Saudi Arabia recently signed 25 agreements worth over US$55
billion in the energy, petrochemicals, infrastructure and
transportation sectors.
Saudi authorities have indicated a review of the policy of
imposing fees on expats as these charges proved painful for the
private sector which is already struggling to adapt to rapid policy
changes. The policy changes are yet to improve Saudi unemployment
which is at its highest level in a decade, despite more than half a
million foreigners having left the workforce.
Qatar announced its withdrawal from OPEC from January 2019.
Qatar is focused on natural gas and accounts for just 2 per cent of
OPEC output. The withdrawal is more symbolic than material.
The UAE issued a much-awaited law that will allow the federal
government to issue sovereign debt. Until now bond issuances were
only at emirate level. Banks in the UAE will also now be able to
buy central government bonds in dirhams or in foreign
currencies.
The UAE is to establish a Foreign Direct Investment Unit in the
Ministry of Economy. The unit will be responsible for promoting
initiatives to help create a more attractive investment
environment. FDI this year is expected to reach US$11 billion (+5.8
per cent), the GCC's largest.
Kuwait's central bank adjusted its lending regulations.
Borrowers can now borrow up to 25 times their income or a maximum
of KWD25,000, up from 15 times or maximum of KWD15,000. The 49 per
cent cap on foreign ownership of Kuwaiti banks is to be lifted.
This will allow foreign investors to own up to five per cent of a
Kuwaiti bank's capital directly or indirectly.
Bahrain's parliament approved a 5 per cent value-added tax law,
which is expected to be levied for the first time in 2019. This
comes on the heels of a US$10 billion GCC financial aid package
provided by Saudi Arabia, the UAE and Kuwait, which will be
disbursed in stages as an interest-free loan, conditional upon
Bahrain adopting economic reforms.
Outlook
GCC economies are looking forward to FY19 as a year of progress,
with all governments setting expansive budgets despite recent
softness in oil prices. The GCC is expected to grow at 3.0 per cent
in 2019 led by investment projects in Saudi Arabia, the five-year
development plan in Kuwait, ongoing preparations for Expo 2020 in
the UAE and FIFA 2022 in Qatar.
With large investments over the next few years, we expect to see
investment opportunities in sectors such as banking, infrastructure
and industrials. The key risk remains the direction of oil prices,
which if they drop further, will limit spending by governments in
the region. The Investment Adviser remains positive on growth in
the region, led by the planned infrastructure projects and the
momentum of reforms across nations.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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