independent

Thursday 17 April 2014

Middle East equities on track for boost as dividends lure investors

Middle East and North Africa (MENA) equities are set to outperform emerging markets as higher dividends and state-funded expansion lure investors hunting for better returns, Franklin Templeton Investment Management said.

The Bloomberg GCC 200 Index of the biggest Gulf Co-operation Council stocks rose 3.7pc in 2012, lagging behind the 15pc rally in the MSCI Emerging Markets Index.

Shares in the Bloomberg GCC 200 Index, which includes the most-traded stocks in the six-nation group, offer a dividend yield of 3.87pc, versus 2.67pc on the MSCI Emerging Markets Index.

"As international investors search further afield for yield, the MENA equity case will garner more interest," said Bassel Khatoun and Salah Chamma at Franklin Templeton Investments.

"Stocks trailed emerging-market peers in the past five years . . . given the supportive regional fundamentals, there is a strong case for the reversal of that trend," they said.

Unrest

MENA stocks underperformed peers as the so-called Arab Spring and Dubai's debt crisis deterred foreign investors.

Momentum is returning as the GCC invests oil wealth in schools and roads in Saudi Arabia and stadiums to host the 2022 soccer World Cup in Qatar.

Companies benefiting from this spending will lure investors given attractive valuations, said Franklin Templeton, whose MENA fund had $50m (€38m) in assets under management at the end of November.

Gulf shares trade at 1.57 times' book value, or assets minus liabilities, while those on Egypt's index trade at 1.39 times, versus a multiple of 1.79 for developed markets in the MSCI World Index.

MENA economies will grow 3.6pc in 2013, according to IMF forecasts. That's three times faster than average growth for developed nations.

Between 2009 and 2012, the MSCI emerging-market gauge surged more than 85pc, compared with a gain of 17pc for Gulf Coast Countries equities and 19pc for Egypt's EGX 30 Index. Volume on MENA markets languished in the past two years as popular revolts ousted leaders and sparked a civil war in Syria and clashes in Bahrain. (Bloomberg)

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