The MENA region had a tough quarter as heavy weight Saudi Arabia (-8%) dragged markets lover. The only market that were spared were peripheral MENA markets who typically are less correlated to price movements in the GCC.  Oman and Egypt gained 7% each while Morocco gained 2%. A lot of the regional money that was invested in Saudi to take advantage of the MSCI upgrade process came out of the UAE. This is one reason why the UAE market has underperformed over the past 2 years. This has also caused a divergence in valuations, where Saudi is trading at an estimated 17x earnings while UAE looks like one of the most attractive markets in the world.  The allocation of the fund has also sharply reflected this, where UAE is now our largest country exposure.

The drone attack on Saudi oil facilities came as a chock to the world but going to war with neighboring Yemen without repercussions is naive thinking and if the war does not come to and end the Houthis will likely strike at the heart of Saudi again. Despite this events, Saudi has proven that they remain focused in carrying out reforms. The government has removed the obligation for visiting women in Saudi to wear abayas and Saudi woman do no longer require a male assent to travel abroad. Apart from these cultural reforms, the country also shows commitment to economic reform. The IPO of Saudi ARMACO is imminent and it appear it will be split in tranches with the aim of listing a total of 5% of the colossal.

Domicile: Malta
Sources: Bloomberg LP

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