TIDMGIF
RNS Number : 2937W
Gulf Investment Fund PLC
22 April 2021
Legal Entity Identifier: 2138009DIENFWKC3PW84
22 April 2021
Gulf Investment Fund plc ("GIF" or the "Company")
Q1 2021 Investment Report
Gulf Investment Fund plc (LSE: GIF), today issues its Q1 2021
Investment Report for the period 1(st) January 2021 to 31(th) March
2021, 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) March 2021
Highlights
Ø Net asset value rose 5.5 per cent vs. the S&P GCC
Composite index up 11.9 per cent
Ø Shareholders were paid 3c per share dividend during the
quarter
Ø Including this dividend the total return over the quarter was
7.6 per cent
Ø Share price trading at a 8.7 per cent discount to NAV vs.
five-year average discount of 12.9 per cent
Performance
GIF net asset value (NAV) rose 5.5 per cent in the quarter,
while the Fund's benchmark, the S&P GCC index, was up 11.9 per
cent.
A 3c per share dividend was paid on 5 March 2021. Including this
the NAV total return was 7.6 per cent. The underperformance was
attributed to the fund being underweight Saudi Arabia, the region's
biggest stock market, which rose 14.0 per cent.
On 31 March 2021, the GIF share price was trading at an 8.7 per
cent discount to NAV. The five-year average discount is 12.9 per
cent.
GCC markets in 1Q2021
Gulf Cooperation Council (GCC) markets outperformed its global
peers, gaining 11.9 per cent. By contrast MSCI World Index was up
4.5 per cent and MSCI EM Index was up 1.9 per cent. The oil price
(Brent) climbed 22.7 per cent, helped by continued supply
constraint by OPEC+, by anticipated draw down in oil inventories
and vaccine-aided recovery in consumption.
Abu Dhabi market led the pack, up 17.2 per cent. Saudi Arabia
followed with a 14.0 per cent increase. Kuwait, Dubai and Oman
markets rose 4.1 per cent, 2.3 per cent and 1.4 per cent,
respectively. Qatar and Bahrain ended the quarter down 0.3 per cent
and 2.1 per cent, respectively.
GIF portfolio structure
Country allocation
GIF's weightings in GCC markets are based on the Investment
Adviser's assessment of outlook and valuation.
Compared to the benchmark, GIF remained significantly overweight
Qatar (31.9 per cent of NAV vs. a S&P GCC Qatar weighting of
12.4 per cent), overweight UAE (19.2 per cent vs S&P GCC of
11.8 per cent) and overweight Oman (2.8 per cent vs S&P GCC of
1.1 per cent). GIF is underweight Saudi Arabia (39.3 per cent vs
S&P GCC weighting of 63.1 per cent) and Kuwait (5.2 per cent vs
S&P GCC of 10.2 per cent). The Fund's cash weighting stood at
1.5 per cent (vs 0.4 per cent as at 31 December 2020).
GIF ended the quarter with 36 holdings: 17 in Saudi Arabia, 7 in
Qatar, 6 in the UAE, 4 in Kuwait and 2 in Oman (vs. 32 holdings in
4Q2020: 15 in Saudi Arabia, 8 in Qatar, 2 in Kuwait and 7 in the
UAE).
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 March 2021.
The Investment Adviser follows fundamental driven, bottom up
stock picking strategy to invest in companies with good prospects
and attractive valuations irrespective of its index weight. This
time tested investment philosophy makes GIF index agnostic and
hence its country weights are not constrained by any formal
reference index. The Investment Adviser believes that
stock-specific investing strategy, when carried out within the
context of broad macroeconomic themes, can be successful in
creating value for investors over the long term.
The Fund's overweight position in Qatar is linked to its
macroeconomic resilience, future growth prospects and attractive
valuations. We believe the valuations are cheap considering the
North Field Expansion (64 per cent increase in LNG production) and
2022 FIFA.
The Fund continues to be underweight and selective in Saudi
Arabia due to expensive valuations. Following announcements related
to the Shareek program, Saudi blue chip stocks (esp. banks) rallied
which resulted in a sharp move in the broader market. This rally in
the markets is primarily driven by positive sentiments and buoyant
liquidity. Saudi broader market is trading at P/E multiple of
34.85x as compared to MSCI EM multiple of 21.70x.
Portfolio
Top 5 holdings
Company Country Sector % share of GIF NAV
Commercial Bank of Qatar Qatar Financials 6.3%
--------- ------------- -------------------
Al Khaleej Commercial Bank Qatar Financials 5.5%
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Dubai Islamic Bank UAE Financials 5.4%
--------- ------------- -------------------
Qatar Insurance Qatar Financials 5.1%
--------- ------------- -------------------
Qatar Navigation Qatar Industrials 5.1%
--------- ------------- -------------------
Source: QIC
In the current scenario, the Investment Adviser believes that
markets will remain volatile, and plans to focus on companies with
solid balance sheet and stable cash flows, at attractive
valuations.
Commercial Bank of Qatar (CBQ), Al Khalij Commercial Bank (KCBK)
and Qatar Insurance Company (QIC) remained in the GIF's top
holdings.
CBQ is the second largest commercial bank in Qatar. The
Investment Adviser likes the bank because of its turnaround story.
CBQ is delivering on its strategy of cutting risky exposures,
addressing inefficiencies and de-risking its balance sheet by
increasing the public sector exposure. It has substantially
improved its operating metrics over the past few years and has
entered 2021 on strong footing. The cost base has lowered and the
funding mix and asset quality has improved. In the near term CBQ is
expected to continue its efforts to boost earnings and will focus
on unlocking efficiencies and value from its legacy books while
avoiding a build-up of bad loans as deferrals are phased out.
Moreover, TL recovery and improved performance from associates will
support its rating.
KCBK is a commercial bank headquartered in Doha. Qatari
Government entities are major shareholders in the bank with more
than 47 per cent ownership. KCBK's principal business activities
include wholesale banking, treasury services and personal banking.
KCBK and MARK recently approved the merger agreement which will
create the largest Islamic Bank in Qatar with combined assets worth
US$49 billion as of 2020.
QIC is a composite insurer with a consistent performance history
of over 50 years and a global underwriting footprint. Founded in
1964, QIC was the first domestic insurance company in the State of
Qatar. QIC is the market leader in Qatar and a dominant insurer in
the GCC and MENA region. QIC is one of the highest rated insurers
in the Gulf region.
The Investment Adviser increased exposure to Qatar Navigation,
one of the key beneficiaries of Qatar's North Field expansion and
Dubai Islamic Bank, as valuations looked attractive.
Dubai Islamic Bank (DIB) was established in 1975 as the world's
first full service Islamic bank by an Emiri Decree. DIB is the
largest Islamic bank in the UAE by total assets, providing a range
of retail and wholesale banking, treasury and investment banking,
and capital markets products and services to individual, corporate
and institutional customers.
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 March 2021.
The Investment Adviser increased exposure to Industrials as
valuations became attractive; as a result, Industrials became the
Fund's largest exposure at 34.0 per cent replacing the Financials
sector. The Investment Adviser remained underweight the Financials
sector as lower interest rates along with an expected increase in
non-performing loans is expected to impact profitability of GCC
Banks in the near term.
GCC: economic update 1Q2021
The Investment Adviser believes that prospects of an improvement
in oil prices will lend strength to the hydrocarbon sector, helping
to restore the fiscal and external position of regional economies,
and improving confidence in the overall economy. Moreover, a
sustained recovery of global trade and travel will lead to the
recovery of the non-hydrocarbon sector. The normalization of
relations with Qatar is also expected to help expand economic
opportunities. However, the pandemic will continue to have a
lingering impact on global travel, hampering a speedy recovery of
the tourism industry.
During the quarter, Saudi Arabia announced a series of economic
and social reforms aimed at modernizing the Kingdom. This is an
important step on the path towards adopting global best practices
that is expected to provide businesses with the confidence to
invest.
Saudi Arabia Monetary Authority (SAMA) issued rules for
practicing debt crowdfunding activities and released an open
banking policy as a part of Financial Services Development Program
(FSDP), an integral part of the national development plan, Saudi
Vision 2030. These twin policies are positive developments for the
country's financial sector and economy at large, and are further
evidence to the strong ongoing reform momentum.
Saudi Arabia also announced the reform of the judicial system
including changes to four main laws, namely, The Personal Status
Law, the Civil Transactions Law, the Penal Code for Discretionary
Sanctions, and the Law of Evidence. This is a very positive step as
it enhances the predictability of rulings, limits the discretion of
judges, and speeds up the litigation process. This reform is yet
another step in the right direction and is expected to be welcomed
by global investors.
Saudi Arabia US$7.2 trillion investment by 2030
Saudi Arabia announced plan to pump investments worth US$7.2
trillion (SAR27 trillion) into the national economy by 2030.
Saudi Arabia US$7.2 Trillion Investment US$ Trillion
Shareek Program 1.33
--------------
PIF 0.80
--------------
New Investment Strategy 1.07
--------------
Saudi Government 2.67
--------------
Saudi Consumer 1.33
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Total 7.20
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The Shareek (Partner) program was launched to strengthen the
collaboration between the public and private sectors to fuel
growth, diversify the economy and create job opportunities. The
Shareek program is expected to enable and encourage the private
sector to invest US$1.33 trillion (SAR5 trillion) over the next 10
years. This program currently comprises twenty-four of the
country's biggest companies from various sectors such as banks,
oil, telecoms and petrochemicals. Energy giant Aramco and
petrochemical firm SABIC will lead this Shareek program by
contributing 60 per cent. The Public Investment Fund (PIF), the
kingdom's sovereign wealth fund, will provide US$800 billion (SAR3
trillion) and the remaining US$1.07 trillion (SAR4 trillion) will
come from a new "national investment strategy", of which some
US$533 billion (SAR2 trillion) would be foreign investment. The
total amount would rise to US$7.2 trillion (SAR27 trillion) with
government spending of US$2.67 trillion (SAR10 trillion) and
domestic consumption of US$1.33 trillion (SAR5 trillion).
Saudi government aim to recycle this money by offloading its
shares in companies in coming years and by issuing IPO of newly
launched projects. Moreover, Aramco would sell more shares as part
of the plans to bolster sovereign wealth fund PIF, the main vehicle
for boosting Saudi investments at home and abroad.
The Saudi Crown Prince approved the PIF's 2021-2025 strategy,
which targets an increase in AUMs to US$1.07 trillion in 2025 from
US$400 billion in 2020 and local investments of at least US$40
billion (SAR150 billion) annually until 2025. Additionally, the
Crown Prince unveiled "The Line" project, a futuristic and green
city within NEOM, which is expected to create 380k jobs and
contribute US$48 billion to GDP by 2030.
The Saudi Arabia General Authority of Civil Aviation launched an
initiative to nationalize around 10,000 jobs in 28 different
professions in the air transport sector. Meanwhile, the Ministry of
Finance "Projects Support Fund" is reviewing more than 100 large
local projects, having already granted credit approvals to more
than 30 projects totaling SAR14 billion. Additionally, KSA's
Investment Minister revealed during the Future Projects Forum (FPF)
that the country's infrastructure and transportation sectors are
seeking about US$400 billion in foreign investments over the next
decade.
UAE visa reforms
The UAE announced multiple visa reforms to position the UAE as
an ideal work and tourist destination. This includes a remote work
visa that enables employees from all over the world to live and
work in the country for one year and a multiple-entry tourist visa
that is open to all nationalities. A new Multiple Entry Tourist
Visa aims to facilitate the process for tourists and visitors. The
five-year visa enables tourists to enter multiple times on
self-sponsorship and remain in the country for 90 days on each
visit with an option of extension for another 90 days.
These reforms aim to boost the competitiveness of UAE's tourism
sector and support the local economy. It provides the opportunity
for businesspersons and talents to live and work in a safe and
attractive business environment, with access to world-class
facilities such as utilities, telecoms, shopping and hospitality.
Additionally, in January 2021, the UAE had announced a law that
would grant the Emirati citizenship to select foreigners. Other
reforms include students being able to sponsor their parents and
long-term Golden Visas.
Qatar US$29 billion for North Field Expansion Project
Qatar Petroleum (QP) announced US$29 billion to develop the
North Field East (NFE) gas project with a capacity of 33 million
tonnes per annum (mtpa). To be built in Ras Laffan, north-east
Qatar, The NFE project is expected to increase Qatar's LNG
production capacity to 110 mtpa from 77 mtpa. QP has awarded the
engineering, procurement, and construction contract to a joint
venture of Chiyoda and Technip which will build the four mega LNG
trains with related utility facilities. Production is expected to
start in 4Q2025.
This project will generate substantial revenues for the state of
Qatar and will have significant benefits to all sectors of the
Qatari economy during the construction phase and beyond. QP is also
expected to announce second phase expansion of the North Field
South (NFS) project this year which will lift the country's LNG
capacity to 126 mtpa by 2027.
GCC capital markets to accelerate
Despite the pandemic uncertainties in 2020, GCC markets hosted
seven IPOs raising US$1.6 billion in total. Tadawul (Saudi)
continued to be the most active GCC stock market in 2020 (86 per
cent of funds raised).
During 2020, Saudi Arabia and UAE took initiatives to facilitate
equity capital market activities on their respective stock
exchanges which should encourage more IPOs in the future. Saudi
Arabia launched the region's first derivative market and approved
the direct listing of companies on the NOMU Parallel Market with
the advantage of less time, cost and effort. In the UAE, Nasdaq
Dubai launched a Growth Market for SME's with more relaxed
requirements. Nasdaq Dubai also signed a cooperation agreement with
Hong Kong and Beijing to encourage and support Chinese companies to
list on the exchange. Additionally, Abu Dhabi Securities Exchange's
Second Market - 'Parallel' which allows investors to trade
securities of private companies, became popular in 2H2020 with four
listings raising US$90 million.
The Kuwait government announced an expansionary draft budget for
FY2021/22 with total spending of KWD23 billion, up 7 per cent, led
by a 20 per cent increase in capex and a 5 per cent increase in
current spending. Total revenues are projected at KWD10.9 billion,
a rise of 46 per cent, on the back of higher oil revenues (oil
price of US$45/bbl; production of 2.4 million bpd), which comprise
83 per cent of total revenues. As a result, the budget deficit is
expected to be KWD12.1 billion (34 per cent of GDP).
The Kuwaiti government approved a law on guaranteeing loans to
SMEs. Under this law, banks will provide up to KWD500 million to
SMEs impacted by the pandemic, with the government guaranteeing 80
per cent of the amount and subsidising the interest cost. The loans
will be repayable over 8 years after a 2-year grace period. The
Kuwaiti government also approved a law allowing deferral of credit
instalments of Kuwaitis for a period of 6 months, with the
government bearing the cost of that deferral. Both the laws could
cost the government about KWD600 million in total. The cabinet also
approved bonuses worth KWD600 million to frontline workers fighting
Covid-19.
Oman plans to lower corporation tax for SMEs for 2020 and 2021
as well as for companies operating in sectors aimed at economic
diversification. These and other fiscal measures are expected to
reduce the fiscal deficit substantially in 2021. The Sultanate also
plans to offer long-term residency to foreign investors. A 5 per
cent value added tax is expected to come into effect from
mid-April, raising around US$1.03 billion annually, roughly 1.5 per
cent of GDP.
GCC Vaccination Update
Countries Doses administered (millions) Population (2020e) (millions) Doses per 100 People
Saudi Arabia 6.0 34.8 17
------------------------------ ------------------------------ ---------------------
UAE 8.9 11.1 80
------------------------------ ------------------------------ ---------------------
Qatar 1.0 2.8 36
------------------------------ ------------------------------ ---------------------
Kuwait 0.6 4.9 12
------------------------------ ------------------------------ ---------------------
Oman 0.2 4.3 4
------------------------------ ------------------------------ ---------------------
Bahrain 0.9 1.5 61
------------------------------ ------------------------------ ---------------------
GCC Total 17.6 59.4 30
------------------------------ ------------------------------ ---------------------
Source: Doses administered taken from bing.com (April 11, 2021),
Population Taken from IMF; Note: Assumed one dose per person
Other Recent Developments
Saudi Arabia bond issuance
Saudi Arabia issued a two-tranche US$5.5 billion bond with
maturities of 12 and 40 years (drawing US$22 billion in orders) and
pricing of 130bps above 10-year US treasuries and 3.45 per cent,
respectively. Additionally, Saudi Arabia became the first GCC
country to issue Euro-denominated negative-yielding bonds, selling
EUR1 billion of 3 years' maturity bonds at -0.057 per cent and a
EUR500 million 9 years bond at 0.646 per cent.
Saudi Arabia Central Bank extends deferred payment program
Saudi Arabia Central bank extended its deferred payment program
for an additional 3 months until June 2021, while it extended its
guaranteed financing program until mid-March 2022.
Oman bond issuance
The Oman government issued US$3.25 billion in three-tranche
bonds having 4-year, 10-year, and 30-year maturities, paying 4.45
per cent, 6.25 per cent, and 7.25 cent, respectively.
Kuwait rating update
Rating agency Fitch cut Kuwait's outlook from stable to
negative, while maintaining the sovereign's rating at AA, due to
the expected depletion of the GRF and the absence of a debt
law.
Kuwait central bank extends coronavirus relief until June
2021
The Kuwait central bank extended the relaxation of some capital
adequacy and liquidity requirements by six months until June 2021
in an attempt to support the economy and to avoid any liquidity
pressures that may creep up in 1H2021.
National Commercial Bank (NCB) and Samba Merged to Form Saudi
National Bank
On April 4, 2021, Saudi Stock Exchange delisted Samba Financial
Group shares on completion of listing the shares that were issued
to Samba's eligible shareholders in respect of the merger
transaction, confirming that the merger has been concluded.
In October 2020, NCB and Samba entered into a binding merger
agreement to form the Kingdom's largest bank with assets of SAR837
billion. The binding agreement comes after both banks signed a
framework agreement in June 2020 for a potential merger, with NCB
being the merging bank with the new name "Saudi National Bank". NCB
paid SAR28.45 for each Samba share as part of the deal, valuing the
lender at about SAR55.7 billion. The purchase price reflects a 3.5
per cent premium to Samba's October 8, 2020, closing price of
SAR27.50.
Outlook
The IMF expects growth in GCC to pick up to 2.7 per cent in 2021
led by higher non-oil growth (+3.5 per cent) supported by
infrastructure spending. Growth in 2022 is expected at 3.8 per cent
led by both oil and non-oil sectors (up 3.4 per cent and 4.3 per
cent, respectively). The U.S. Energy Information Administration
(EIA) expects oil prices to average at US$62.28 per barrel in 2021
and US$60.49 per barrel in 2022. The Investment Adviser believes
that the hydrocarbon sector will regain strength from improved oil
prices and that the regional narrative will change from austerity
to growth with economic momentum increasing from 2021 onwards.
Investing in the region is not just all about oil. It is about
diversification, infrastructure spending, expansion of the non-oil
and gas sector, privatization, and economic, social, and capital
market reforms. We continue to see greater opportunities in the
region. The Shareek program in Saudi Arabia aims to strengthen
public-private partnership to fuel economic growth and accelerate
diversification. Shareek aims to pump US$7.2 trillion into the
Saudi economy in the next decade. The country aims to welcome 100
million visitors annually by 2030, which should contribute up to 10
per cent in national GDP. Large infrastructure projects like the
NEOM Project (US$500 billion), Red Sea Development and Qiddiya
Entertainment City is expected to push tourism development. On the
other hand, expansion of the North Field in Qatar will increase
Qatar's hydrocarbon production by about 64 per cent by 2027. The
upcoming FIFA World Cup will generate opportunities for the region
and specifically for Qatar. Over 1.7 million people are expected to
visit Qatar during the tournament.
Socio-economic and capital market reforms in Saudi continue to
throw up opportunities for long term investors. Valuations in the
region and especially in UAE (despite the current challenges being
faced) are attractive. The pandemic has given opportunities for
sectors looking to consolidate, with companies forming stronger
entities in order to gain market share and improve operational
efficiency. We believe consolidation will accelerate in multiple
sectors.
To sum up, the outlook is compelling especially when compared to
investment opportunities elsewhere following the recent strong
rally in the global equity markets. Investors should not overlook
the dollar-linked superior dividend yield in the region.
GCC markets typically outperform global/EM markets during
risk-off periods, after the initial sharp recovery. This flows from
their defensive qualities, which include higher local investor
participation, US$-pegged currencies, and low correlation versus
EM.
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