A professional investor tells us where he'd put his money. This week: Nick Wilson of the Gulf Investment Fund explains why you should invest in the region.
Do you see the Gulf region as a politically volatile area where investors' rights are low in importance? Think again. Countries across the Arabian Gulf have well established stockmarkets and a tradition of listed companies. Some markets even boast dividend yields of around 5% better than the UK's current 4%. Dubai is yielding 5.2%, Abu Dhabi 5.5% and Qatar 4.5%. For those nervous of the all-time highs of world stockmarkets, it is reassuring that Gulf markets have low correlation to both developed and emerging markets.
The oil price fall in recent years forced Gulf governments to trim their expenditure and supercharged the drive to diversify economies away from oil and gas. Qatar now generates around 70% of its GDP from sectors other than oil and gas. There is massive infrastructure investment across the region. Governments are pursuing reflationary spending policies, which should benefit the consumer spending, banking, healthcare and tourism sectors. The recent upswing in the oil price is also an unexpected bonus. On the flip side, we have discord in the shape of the travel and trade ban implemented by Saudi, UAE and others against Qatar.
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Opening up to foreigners
Many Gulf governments are working to make their markets more open to international investors. This is leading index providers FTSE and MSCI to upgrade Gulf countries. The United Arab Emirates (UAE) and Qatar have been promoted from frontier to emerging status, Saudi and Kuwait are coming next.
Saudi is the biggest Gulf market, with a capitalisation of $540bn. Under the new crown prince, widespread reforms have been implemented. On the economic front, the float of Saudi Aramco is the biggest deal, expected in 2019. In the UAE, Abu Dhabi is still heavily dependent on oil. However, Dubai has very little oil, with an economy based on real-estate development, financial services and tourism.
Qatar, despite having some of the world's largest gas reserves, has been the most successful in diversifying its economy. It is in the midst of a massive infrastructure build-out, including a new city, Lusail, of 200,000 people. Kuwait boasts a programme of non-oil projects worth more than $300bn. The FTSE plan to upgrade Kuwait to emerging-market status should attract over $800m of investment inflows.
How to invest
The actively managed, London-listed Gulf Investment Fund invests in the region. Those who wish to own stocks directly should consider the top financial-sector picks below, all set to benefit from state spending and economic diversification.
Al Rajhi Bank (Saudi Arabia: RAJHI) is the leading Islamic bank in Saudi Arabia, with a strong brand and a 17% market share. With a focus on retail lending, it is set to benefit from consumption growth and increasing interest rates.
National Bank of Kuwait (Kuwait: NBK) is Kuwait's largest banking group with a dominant market position in loans and deposits. It operates through an international network covering the world's financial centres in 15 countries.
Commercial Bank of Qatar (Qatar: CBQK) is well managed and has built strong positions serving businesses in Qatar's fast-diversifying economy.
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