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mena equity comment

mena equity comment

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Published by lochoe

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Published by: lochoe on Jul 24, 2008
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06/14/2009

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This commentary has been based on information obtained from sources believed to be reliable, no representation or warranty is made byCIMB Wealth Advisors Berhad and its investment managers, CIMB-Principal Asset Management Berhad nor the acceptance of anyresponsibility or liability is made as to its accuracy, completeness or correctness of the information contained herein. Expressions of opinioncontained herein are those entirely of CIMB Wealth Advisors and the information is subject to change without notice. This commentary isprovided for information purposes only and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sellsecurities. It may not be reproduced, distributed or published by any recipient for any other purpose.
CIMB-Principal MENA Equity Fund
Investment Services Department +60 (3) 7718 5043
09 June 2008
Fund Strategy
Up to 98% of the NAV will be invested in equities or securities of companies principally establishedand listed in the MENA region. The targeted fund invests in company such as Emaar Properties(Dubai), First Gulf Bank (UAE), Qatar Navigation and many more profitable companies.Launched in February 2008, CIMB-PRINCIPAL MENA EQUITY FUND is an equity fund establishedin Malaysia. The Objective of this fund is total return. The fund invests as a feeder fund in the OceanFund – equities MENA opportunities which invest in equities of companies domiciled or havingsignificant operations, and listed in the middle eastern & North African Countries.
Fund Performance
Source: Bloomberg
Referring to the chart above, MENA fund has been moving upward since inception. The mother fund,Ocean fund equities MENA opportunities is performing well and so does the MENA fund as they willbe managed with similar investment philosophy and style.
 
 
This commentary has been based on information obtained from sources believed to be reliable, no representation or warranty is made byCIMB Wealth Advisors Berhad and its investment managers, CIMB-Principal Asset Management Berhad nor the acceptance of anyresponsibility or liability is made as to its accuracy, completeness or correctness of the information contained herein. Expressions of opinioncontained herein are those entirely of CIMB Wealth Advisors and the information is subject to change without notice. This commentary isprovided for information purposes only and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sellsecurities. It may not be reproduced, distributed or published by any recipient for any other purpose.
CIMB-Principal MENA Equity Fund
Investment Services Department +60 (3) 7718 5043
09 June 2008
Sub’s manager comment on mother fund - Ocean Fund Equities MENA Opportunities
The MENA markets performed well during the month of April as positive first quarter results set thetone for the coming year. The Gulf Cooperation Council (GCC) markets were particularly strong, withQatar the clear leader, rising 18.1%, as banking and property gained. The Saudi and Omani marketsalso performed well, rising 12% and 11.1% respectively. Non-GCC markets were less bullish withEgypt and Jordan rising by a 5.5% and 2.4% respectively, while Morocco was the region’s worstperforming market and the only market to post a negative return, declining by 2.95%.In April the Fund rose around 8%. Notable holdings included Qatar Real Estate and Qatar Electricityand Water, which both posted gains of close to 20%. The Fund also benefited from its Omaniholdings, with Oman Cement and Galfar Engineering performing strongly. On the downside, the Fundwas held back by its holdings in Kuwaiti banking stocks which, in line with the Kuwaiti market,underperformed.We remain positive on the outlook for the MENA asset class. The GCC investment programme stillcontinues at a rapid pace. Inflationary pressure remains the greatest risk to the region, although wedo not see this as a major reason for concern at this stage as it is a natural by product of the region’svast investment program. More importantly from the Fund’s point of view, the region’s companieshave been successful in passing on inflationary costs. We still feel the valuations in MENA marketsare attractive, particularly given the positive outlook for the GCC economies in the coming few years.
Market OutlookEconomic growth driven by oil revenues
World oil demand is increasing year on year. The demand grew 1.1% p.a. during year 1988 to 2003and is expected to grow 1.4%p.a for the next 20 years. Demand has outpaced supply and driven highoil prices. In China, oil consumption is increasing at a faster rate of 7.5% a year compared to US’s1.1% a year due to an increasing private automobile ownership from rising incomes. The increasingof oil consumption is a key to MENA’s growth as Middle East represents 60% of global oil reservesand produces 1/3 of global oil supply. MENA countries have achieved a fiscal surplus position from1.5% in early 2000s to 14.5% in 2006; its strong performances have created a trade surplus of 24.5%of regional GDP in 2006.
Foreign Direct Investment Increasing
MENA region has FDI flows of US$24.4 in 2006 which was up almost 40% in the year and triples thelevel of 2004. The sharp increase was due to a major privatization deals and increased investmentsin the energy, infrastructure, real estate and tourism sector. In Egypt and Morocco, FDIs in 2006 wasmore than 10 times the level of 5 years earlier.
 
 
This commentary has been based on information obtained from sources believed to be reliable, no representation or warranty is made byCIMB Wealth Advisors Berhad and its investment managers, CIMB-Principal Asset Management Berhad nor the acceptance of anyresponsibility or liability is made as to its accuracy, completeness or correctness of the information contained herein. Expressions of opinioncontained herein are those entirely of CIMB Wealth Advisors and the information is subject to change without notice. This commentary isprovided for information purposes only and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sellsecurities. It may not be reproduced, distributed or published by any recipient for any other purpose.
CIMB-Principal MENA Equity Fund
Investment Services Department +60 (3) 7718 5043
09 June 2008
Massive government expenditure on infrastructure
GCC countries are planning on spending US$1.5 Trillion on infrastructure in the next 5 years and thisis expected to boost for economic growth in the MENA region. Government focuses on buildingstrong industrial base in order for an improvement in petrochemical and downstream activities,transport and logistic business.
Population growth – strong future domestic demand
GCC region has population of 100 million, which its population growth rate is increasing year on year and higher than developed and emerging market. Half of the region population is below the age of 20implies a large emerging consumer market and large labour force. The higher population growth hasa strong domestic demand which drives a long term stable growth.
Undervalued markets – attractive valuations
MENA markets are undervalued markets with attractive valuation. This undervalued region hasattractive stock markets, with reasonable valuations and strong IPO activities, which will lead to apotential strong future growth.
High market capitalization and turnover 
GCC economies form 16.5% of global emerging market capitalization with high liquidity. For instance,Saudi Arabia has the higher market capitalization of US$420.39b and trading value of US$2092mover three 3 months, followed by Kuwait which has market capitalization of US$189.15 and tradingvalue of US$532m.
Low correlation to World Markets
MENA markets have low correlations to world market. The correlations to global equities are muchlower compared to world Asia, Latin America or Emerging Markets. This delivers portfoliodiversification with powerful potential growth. During time of jitters, MENA has been more resilientcompared to other emerging markets implying a more defensive strategy in an EM portfolio by MENAin times of high volatility.
Under researched region/market
Interest in MENA markets is increasing as the research coverage is gradually increasing. There is anopportunity to enter the market in the early stages, provided the PEs for the region are relatively lowcurrenltly, in order to discover undervalued stocks and exploit inefficiencies.

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