The MENA region continued to perform strongly lead higher by index heavyweight Saudi Arabia (+13%). The net oil exporting countries showed the strongest performance for the quarter on the back of a strong rebound in the price of Brent (+27%) while peripheral markets like Lebanon, Oman and Morocco were left out in this risk on the market-driven rally.
The largest country weight in the fund is Saudi Arabia with currently a 33% position. This Tadawul market is still only 2% owned by foreign investors but huge flows of around $50bn are expected from active and passive investors due to the inclusion in the MSCI and FTSE emerging market indices. The stock market reforms in the country have been very successful, but the lesser known cultural reforms have perhaps been even more successful and are swiftly changing the landscape in Saudi. Few would have expected that in the course of just a few years men an women in Saudi would be eating at the same restaurant tables, women to drive cars and cinemas has opened up for the public.
We expect MENA equities to remain positive with markets supported by foreign inflows into Saudi and Kuwait ahead of the actual MSCI/FTSE inclusion. Further strength could come from continued elevated oil prices as supply remains a concern after OPEC production cuts. Despite recent underperformance, the Qatari markets look expensive and our exposure to the market remains close to nil. UAE markets are in value territory but have few catalysts on the horizon and the macro backdrop remains sluggish.