Mena fund managers upbeat on financials

Financial stocks in the Middle East and North Africa (Mena) region have bounced back strongly, according to Standard & Poor’s (S&P) Fund Services’ latest sector update.

However, there is still a lack of consensus among Mena fund managers on whether the sector is through the worst.

Roberto Demartini, an analyst at S&P, says some managers have turned more positive on financials and benefited from the re-rating of the sector.

Financial stocks in the Mena region performed generally well in the first seven months of this year, following a difficult 2008 and 2009.

S&P says that among funds investing in financials within the region, the higher-quality ones have stood out in terms of performance.

The team at the Sico Arab Financial fund, for example, took a positive stance on financials which paid off. (article continues below)

Likewise, the team at Markaz, led by Amani Al-Omani, kept its focus on the banking sector.

As the team on the Muscat fund expects further credit growth in the second half of this year, it has increased its exposure to the banking sector.

Despite strong performance in the financials sector, Demartini says fund managers are not convinced the worst is over.

Some have even reduced their exposure to financial names as they are concerned over the slowing balance sheet growth.

Net interest rates are also flat to negative, and credit costs are generally high.

Led by Rajesh Venkiteswaran, the team at Vision has reduced its exposure to the banking sector, for example.

Dubai’s debt crisis, which hit the headlines in November last year, took many Mena fund managers by surprise. They feared that the region would come under further selling pressure, after Dubai World, a state-owned holding company, delayed its repayment of debts.

In its annual review published in February, S&P said that most funds were fully invested following a period of holding large cash reserves.

On a country level, managers’ opinions differed on Kuwait. The vast majority of managers are still negative and lost out when the market did well this year.

In contrast, Al-Omani at Markaz managed to capture this upward trend. His fund benefited from a position in Kuwaiti telecoms operator Zain, which performed strongly following news of the sale of non-core assets.