Middle East funds have become more cautious about investing in equities after sharp pull-backs in some markets underlined how high valuations had left them vulnerable, a monthly Reuters survey showed.
The latest survey of 15 leading investment managers, conducted over the past 10 days, showed only 13 per cent expect to raise their equity allocations to the region over the next three months – the lowest ratio since the survey was launched in September last year.
Twenty per cent expect to decrease their regional equity allocations. The balance marked a significant shift from the last survey a month ago, when 33 per cent intended to raise equity allocations and 20 per cent to decrease them.
Heavy profit-taking pushed many Middle East stock markets down sharply in June. The Dubai market, for example, has plunged 19 per cent since the end of May, partly because of a collapse of the shares of construction firm Arabtec after management turmoil at the company.
In some cases, the markets’ pull-backs have been the sharpest for over a year, suggesting an indiscriminate uptrend in the region – the result of its recovery from the global financial crisis and in Egypt, the easing of a political crisis – has ended.
“The forecast is for the market volatility to persist as broader market valuations remain rich,” remarked V. Gowribalan, the head of asset management at Ahli Bank Oman.
He said Ahli still saw value in GCC equities, particularly Saudi Arabia, Qatar and Oman, along with some areas of the UAE. But he added that the key driver of individual stocks would now be news headlines or rumours, not a broad uptrend.
“It is our view that the ‘reflation trade’ is done. Moving forward we expect stock picking to be the mantra.”
Middle East fixed income may benefit from the change. The latest survey showed 20 per cent of funds expect to raise their fixed income allocations over the next three months, while 13 per cent expect to reduce them.