TIDMGIF
RNS Number : 5880A
Gulf Investment Fund PLC
22 January 2020
Legal Entity Identifier: 2138009DIENFWKC3PW84
22 January 2020
Gulf Investment Fund plc ("GIF" or the "Company")
Q4 2019 Investment Report
Gulf Investment Fund plc (LSE: GIF), today issues its Q4 2019
Investment Report for the period 1(st) October 2019 to 31(st)
December 2019, 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 2019
Highlights
Ø Net asset value (NAV) +2.4 per cent; S&P GCC Composite
index (S&P GCC) +4.4 per cent
Ø GIF NAV went ex-dividend during the quarter. Including the 3c
per share dividend, NAV would be up 4.7 per cent
Ø In 2019, NAV increased 20.7 per cent vs. S&P GCC +8.3%
Ø MSCI confirmed Kuwait's inclusion in EM index starting May
2020
Performance
NAV rose 2.4 per cent in the quarter. The fund's benchmark, the
S&P GCC index, was up 4.4 per cent. NAV went ex-dividend during
the quarter. Including the 3c per share dividend paid on 10 January
2020, the NAV for the quarter would have increased 4.7 per
cent.
For 2019 as a whole, the NAV increased 20.7 per cent, ahead of
the S&P GCC index, which was up 8.3 per cent. Including the 3c
per share dividend, NAV was up 23.5 per cent against the S&P
GCC total return of 12.5 per cent.
Looking back to when the investment mandate widened from
Qatari-focused to Gulf-wide in December 2017, NAV has risen 48.4
per cent (dividend included), against the S&P GCC total return
of 30.5 per cent.
On 31 December 2019, the GIF share price was trading at a 9.4
per cent discount to NAV.
GCC Markets
Global equity markets ended the year near record highs. GCC
markets rose, with the S&P GCC index up 8.3 per cent in 2019.
Kuwait outperformed the others, ending the year up 23.7 per cent.
Bahrain performed similarly closing the year up 20.4 per cent.
Dubai and Saudi Arabia posted rises of 9.3 and 7.2 per cent
respectively. Qatar rose 1.2 per cent, while Oman closed the year
down 7.9 per cent.
During the quarter, the S&P GCC Index increased by 4.4 per
cent. This was driven by a strong quarterly performance from Kuwait
and Saudi Arabia, up 10.6 and 3.7 per cent respectively. Bahrain
closed the quarter up 6.2 per cent.
Saudi Arabia raised US$25.6 billion by listing just 1.5 per cent
of Aramco's shares on its exchange, the Tadawul. This translates to
a US$2 trillion valuation, as the stock price rose on the first two
days of trading.
Military action by US and Iran has heightened tensions in the
region, but it has not, at the time of writing, caused any of the
GCC governments to change their economic outlooks. Nor do we expect
it to, given that these sorts of events have occurred in the
past.
Saudi Arabia and Kuwait Upcoming FTSE / MSCI Inclusion
Events
Saudi Arabia FTSE Inclusion (Expected Weight: 2.7%)
Date Phase % inclusion Expected Inflows (US$ Bn)
Mar 2020 V 25% 1.5
Kuwait MSCI Inclusion (Expected Weight: 0.69%)
Date Phase % inclusion Expected Inflows (US$ Bn)
May 2020 - - Passive:2.7; Active:7.5
Source: EFG Hermes Estimates, Arqaam Capital, KMEFIC
Following the Aramco IPO, MSCI and FTSE announced Aramco will be
included in their emerging market indices. Aramco will have a
weight of c 0.15% in MSCI EM which is expected as a result to
attract US$700 million of passive inflows. Aramco will have a c.
0.3% weight in FTSE EM which should see it attract passive inflows
of c. US$650 million.
Kuwait's MSCI EM inclusion in May 2020 will mean it has a
weighting of 0.69% of the index, and this should attract US$2.7
billion from passive investors.
The proposed c.5 per cent listing of Aramco, higher foreign
ownership limits in UAE and Kuwait's inclusion will take the weight
of GCC in the MSCI EM Index to c.6.7% (current weight 4.0%).
GIF Portfolio structure
Country allocation
GIF's weightings in GCC markets are based on the Investment
Adviser's views of investments' outlook and valuations. Compared to
the benchmark, GIF continued to be overweight Qatar (32.1 per cent
of NAV vs. S&P GCC Qatar: 15.3 per cent). GIF's weightings in
Saudi Arabia, UAE and Kuwait are 26.2 per cent, 22.6 per cent and
16.7 per cent respectively (vs. S&P GCC weights: Saudi
Arabia:54.5 per cent, UAE: 14.3 per cent, Kuwait: 12.5 per
cent).
During the quarter, the Investment Adviser increased exposure to
Kuwait by 3.7 per cent ahead of its inclusion in the MSCI EM index.
As a result, the fund's cash position reduced to 2.3 per cent of
NAV as of 31 December 2019 (30 September 2019: 5.9 per cent).
As of 31 December, GIF had 45 holdings: 20 in Saudi Arabia, 10
in Qatar, 5 in the UAE, 9 in Kuwait and 1 in Oman (vs. 54 holdings
in 3Q19: 25 in Saudi Arabia, 9 in Qatar, 7 in the UAE, 11 in Kuwait
and 2 in Oman).
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: GIF Country Allocation as of 31 December 2019.
Portfolio
Top 5 Holdings
Company Country Sector % share of GIF NAV
Emirates NBD UAE Financials 13.3%
--------- ------------ -------------------
Qatar Gas Transport Qatar Energy 8.1%
--------- ------------ -------------------
Commercial Bank of Qatar Qatar Financials 7.0%
--------- ------------ -------------------
Qatar National Bank Qatar Financials 5.0%
--------- ------------ -------------------
Abu Dhabi Islamic Bank UAE Financials 3.9%
--------- ------------ -------------------
Source: QIC
Emirates NBD (ENBD) and Qatar Gas Transport Co. (QGTS) continued
to remain GIF's top holdings.
Emirates NBD is a leading UAE bank with c.20 per cent market
share of the UAE's loans and deposits, as well as strong capital
buffers to weather economic challenges and developing regulatory
requirements. Being backed by the UAE government, it is one of the
largest financial institution in the MENA region. ENBD has
delivered strong returns to its shareholders with net profit growth
of CAGR 19.5 per cent (period: 2014-2018) with high return on
equity (2018: c.22%). Its recent acquisition of Deniz Bank has
expanded its geographic reach to 13 countries. Emirates NBD is well
placed to fund organic growth and its international expansion
strategy through its capital-generative core business.
QGTS is a leader in energy transportation, with the world's
largest Liquified Natural Gas (LNG) carrier fleet in operation.
This comprises 74 vessels including 69 LNG vessels, 4 LPG vessels
and 1 floating storage regasification unit FSRU vessel. QGTS is
well placed to benefit from increased transport demand arising from
the Qatar's North Field expansion plan.
The Investment Adviser increased the fund's holding in Qatar
National Bank (QNB) and Abu Dhabi Islamic Bank. QNB is the largest
bank in the Middle East and Africa (MEA) region with a presence in
31 countries. The Qatari government is the largest shareholder in
the bank and is strongly committed to supporting it. The bank is
geographically diversified with stable growth (2012-2018 net profit
CAGR of 8.7%) and a high return on equity (2018: c.20%). Focused on
public sector and high-end corporates clients, QNB maintains a
strong balance sheet backed by comfortable capital and liquidity as
well as low asset quality risk, with non-performing loans at one of
the lowest amongst large financial institutions in the MEA region
(1.9%).
Abu Dhabi Islamic Bank is a leading regional Islamic financial
services group with 80+ retail branches across UAE. Majority owned
by members of the ruling family of Abu Dhabi and the sovereign
wealth fund, the bank has an overseas presence in UK, Saudi Arabia,
Qatar, Iraq, Sudan, and Egypt. The bank has 4.7 per cent loan
market share in the UAE and has reported stable growth with a CAGR
of 11.3 per cent (period: 2014-2018) with return of equity of 18
per cent (2018).
Sector allocation
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: GIF Sector Allocation as of 31 December 2019.
The Investment Adviser increased exposure to the Financials
sector to 47.3 per cent from 37.5 per cent in the previous quarter.
The Investment Adviser believes that in the medium term, lower
interest rates are expected to support private sector credit growth
and overall credit demand in the region.
The Materials sector is the second largest sector at 12.1 per
cent. GIF has invested c.10 per cent of the portfolio in the Saudi
Arabian cement sector. The Investment Adviser expects cement
volumes to grow in 2020 as demands from the development of mega
projects increases. Significant increases in construction activity
in recent quarters support the strong outlook for the sector. The
value of contracts awarded in the sector in 3Q19 reached US$12.7
billion, up 164 per cent YoY, taking the total value of cement
contracts awarded in the first nine months of 2019 to US$23.3
billion, an increase of 117 per cent YoY.
Holdings in the Materials sector were increased marginally,
while investments in the Energy and Consumer sectors were reduced
as valuations looked stretched.
GCC Budget and Economic Outlook 2020
Real GDP Growth in the GCC
2000-15
Avg. 2016 2017 2018 2019f 2020f
Real GDP 4.8% 2.3% -0.3% 2.0% 0.7% 2.5%
-------- ----- ------ ----- ------ ------
Oil 3.0% 2.9% -3.0% 2.5% -1.4% 1.9%
-------- ----- ------ ----- ------ ------
Non-Oil 6.7% 1.9% 1.9% 1.9% 2.4% 2.8%
-------- ----- ------ ----- ------ ------
Source: IMF REO October 2019
Economic growth in the GCC slowed in 2019 with aggregate growth
projected at 0.7 per cent, down significantly from 2.0 per cent in
2018. A subdued Oil sector (-1.4 per cent) was the major
contributor to this fall amid restricted oil production activity in
line with the OPEC+ agreement. However, the non-oil sector
continued to report steady growth, signaling the continued results
of diversification initiatives.
Overall GCC growth in 2020 is expected to rebound to 2.5 per
cent, primarily driven by recovery in oil sector on rising oil and
gas output. Oil Real GDP is expected to grow 1.9 per cent in 2020.
Meanwhile, the non-oil sector is expected to report growth of 2.8
percent in 2020, up from 2.4 per cent in 2019. Kuwait and the UAE
will receive boosts in tourism from their respective Expo 2020.
Qatar will continue its preparations towards hosting the 2022 World
Cup.
Moreover, recent improvements by GCC nations in the World Bank's
Ease of Doing Business ranking confirm that continued efforts
towards structural reform are being effectively implemented. Saudi
Arabia, Bahrain and Kuwait ranked among top 10 global improvers in
the World Bank's assessment. Separately, most GCC economies have
cut their interest rates in line with the Fed' rate policy in 2H19.
This should support business activity and assist in lowering debt
servicing costs.
Saudi Arabia approved a US$272.0 billion budget for 2020,
marginally lower than the expected expenditure of 2019. This budget
underlines the significance of the economic transformation being
sought with the nation's National Vision 2030. Government revenues
are estimated at US$222.1 billion and the budget deficit is US$50
billion or 6.5 per cent of GDP. Actual spending for 2019 is
expected to reach US$279 billion, and the total actual government
revenue is anticipated to be US$245 billion, with a deficit of
US$35 billion or 4.7 per cent of the GDP.
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: Saudi Arabia Budget 2020
Qatar announced its 2020 budget with spending at US$57.8
billion, the largest in the last five years. Major projects have
received the largest share (43 per cent), reflecting the country's
commitment to complete projects in sectors including healthcare,
education, and transportation, as well as those related to the
hosting of the FIFA World Cup in 2022. Government revenue for 2020
is projected at US$58.0 billion based on an assumed oil price of
US$55/barrel generating a surplus of US$137 million.
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: Qatar Budget 2020
The UAE Cabinet approved a balanced budget of US$16.7 billion
for the 2020 year, which is 1.8 per cent higher than in 2019 and
the nation's highest on record. The Dubai government has also
announced an expansionary budget for 2020 with the largest ever
spending at US$18.1 billion. The budget aims to make Dubai one of
the most livable counties in the world by focusing on key sectors
such as social services, health, education, and housing.
Kuwait has charted a budget of US$74.5 billion for the fiscal
year starting April 2020, unchanged over current year. Revenues are
estimated at US$49.0 billion, 6.5 per cent lower than estimated
revenues for current year. The budget assumes an oil price of US$55
a barrel and expected to report a deficit of US$25.5 billion
(before deducting the sovereign wealth fund's share).
Oman has announced a budget of US$34.3 billion for 2020, an
increase of 2.3% over 2019. Revenue for 2020 is projected at
US$27.8 billion, predicated on an oil price assumption of
US$58/barrel, resulting in a deficit of US$6.5 billion, 10.7% lower
than 2019.
Please refer to the IMS on the Company's website
https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/
for a Chart: GCC Budget 2020 - Expenditure.
GCC Economic Update 4Q19
Saudi Arabia PMI fell to 56.9 in December but persisted steadily
over 50 indicating MoM improvement in non-oil private activity.
Saudi unemployment continued to trend down, with the rate falling
from 12.3 per cent in 2Q19 to 12 per cent in 3Q19, the fifth
consecutive quarterly improvement.
Qatari authorities revealed that North Field gas has almost
double the reserves than its earlier estimates (as large as 1,760
tcf). As a result, Qatar is planning to build two more LNG mega
trains by 2027, which would boost LNG output by 64 per cent to 126
million tonnes.
S&P updated Bahrain's rating outlook to positive from
stable, on account of the country's progress on its fiscal
consolidation program. Although the sovereign is rated
non-investment grade (B+), the upgrade in outlook should boost
investor confidence.
Outlook
The IMF expects growth in the region rise to 2.5 per cent in
2020, up from 0.7 per cent in 2019. Gradual recovery in oil prices
and continued infrastructure spending will likely boost economic
activity in the medium term. Rising oil output in Kuwait and Saudi
Arabia, and gas output in Qatar and Oman, should support growth in
the hydrocarbon sector.
With large investments anticipated over the next few years, the
Investment Adviser expects to see increasing opportunities in
banking, infrastructure and industrials. The oil price remains a
key risk. Further decreases in oil prices would lead to GCC
governments limiting spending. Despite this, the Investment Adviser
remains optimistic on the regional growth prospects, buoyed by
planned infrastructure projects and positive momentum in economic
and social reforms.
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END
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