Gulf Regulatory News (GIF)

13 April 2023

Gulf Investment Fund plc (GIF) quarterly report: 3 months to 31 March 2023

Legal Entity Identifier: 2138009DIENFWKC3PW84

§ Net Asset Value (NAV) up 2.8 per cent (S&P GCC Index down 0.4 per cent)

§ 2023 outlook positive, supported by firmer oil price, expansionary fiscal policies, comparatively low inflation, and continuing economic and institutional reforms.

Performance

GIF NAV rose 2.8 per cent for the quarter, outperforming the benchmark S&P GCC Index which fell 0.4 per cent. Outperformance was driven by the fund's increased weighting in Saudi, underweight positions in UAE and Kuwait, and stock selection.

Positive performance came from holdings in Middle East Healthcare (up 47.9%), Seera Group Holdings (up 27.8%), United International Transportation Company (up 27.5%) and Company for Co-op Insurance (up 30.7%). Performance was partly dragged down because of Qatar Navigation (down 19.0%), Saudi National Bank (down 9.2%) and Qatar Gas Transport (down 5.5%).

On 31 March 2023, GIF share price was trading at a 4.6 per cent discount to NAV (five-year average discount 8.0 per cent).

Portfolio changes

GIF increased exposure to healthcare, industrials, communication services, and energy as valuations look undemanding with attractive growth profile.

Healthcare increased to a 3.0 per cent of NAV from nil in 4Q 2022, with new holdings in Middle East Healthcare Co. Growth is expected with 335 beds being added, hospital renovations and price revisions and accreditations with insurance companies.

Exposure to industrials rose to 25.6 per cent of NAV from 22.8 per cent in 4Q 2022, mainly due to new holdings in Maharah Human Resources, Bawan Company and Abu Dhabi Ports Company. We view Maharah positively on the backdrop of a favorable Saudi labour market outlook. Abu Dhabi Ports is expected to grow over the medium term. Meanwhile, Bawan is attractively valued and well positioned to benefit from higher construction activities on back of planned megaprojects in Saudi Arabia.

Communication services was increased to 6.6 per cent of NAV from 4.9 per cent in 4Q 2022, due an increased holding in Saudi Telecom.

Energy sector exposure was increased to 10.8 per cent of NAV from 9.3 per cent, with Abraj Energy, a leading provider of drilling rig services, as a new holding following its IPO. Abraj has one of the youngest drilling fleets and an order backlog. 

GIF's exposure to consumer staples, financials and real estate was reduced in order to get exposure to better opportunities elsewhere. Consumer staples exposure was reduced from 3.0 per cent to nil; while financials reduced from 34.3 per cent to 32.0 per cent. Real estate reduced from 4.1 per cent to 1.8 per cent of NAV.

Relative to the benchmark, GIF is overweight Qatar (23.2 per cent vs. an index weighting of 10.8 per cent), Saudi Arabia (59.8 per cent vs 59.4 per cent) and Oman (1.3 per cent vs 1.1 per cent). GIF is underweight UAE (7.0 per cent vs benchmark weight of 16.8 per cent), Kuwait (4.2 per cent vs 11.2 per cent). 4.4 per cent of the fund was in cash on 31 March 2023.

Exposure to Saudi Arabia increased to 59.8 per cent (from 51.8 per cent) on valuation grounds.

Qatar remains an overweight as its macroeconomic resilience and the stocks' defensive characteristics make the country attractive. Valuation-wise Qatar market trades at a discount to its GCC peers.

GIF ended the quarter with 29 holdings: 19 in Saudi Arabia, 4 in Qatar, 4 in the UAE, 1 in Kuwait and 1 in Oman.

Outlook

The outlook for the GCC in 2023 remains positive supported by firmer oil prices, low inflation, fiscal surpluses, and active transformation programs. While the global economy is anticipated to decelerate to 2.9 percent in 2023, on recessions and inflationary pressures, the GCC economies are projected to grow at a rate of 3.6 percent.

While global investors generally are underweight Qatar, Kuwait, and Saudi, the weighting of the GCC in EM indexes is expected to increase with more IPO listings, privatisations and as foreign ownership limits increase.

The rise in hydrocarbon prices presents a chance for GCC nations to expedite the diversification of their economies. As the GCC economies diversify, the growth rate of non-oil industries, which are currently showing strong growth potential, should continue to increase. The GCC region's national visions, industrial strategies, and a range of tourism-related policies will help the diversification process.

The GCC's economic growth is anticipated to be solid, helped by firmer oil prices projected to hover above fiscal breakeven prices in 2023 and significant "twin" surpluses. GCC corporate and infrastructure firms remain in a favorable position to cope with inflation, elevated funding costs, and concerns about an economic downturn. Inflationary pressures in GCC countries, which were comparatively mild compared to the global average, are predicted to decline, with inflation rates expected to drop to 2.6 per cent in 2023.