Stockmarkets across the MENA region generated a robust performance in January, with Saudi Arabia in particular making strong gains. A late uptick in the oil price may have provided some support, though the price of Brent crude still fell by close to a net 10% in US dollar terms over the course of the month. Returns were however somewhat flattered by the ongoing strength of the US dollar.
In Saudi Arabia, the death of King Abdullah brought King Salman to the throne with the new king marking his succession by ordering the immediate payment of a two months bonus to all current and retired government workers, a move widely copied outside the state sector, and worth some USD 30 billion to the economy. This came on top of the Saudi budget for 2015, published towards the end of December, which maintained a focus on infrastructure and development investment and did not cut back on any spending in such areas as education, benefits or job creation despite factoring in an oil price around current levels, according to most analysts’ estimates. Unsurprisingly, the financial markets responded very positively to these developments, with share prices also benefiting from a slew of positive company announcements.
Many of the Saudi companies in the portfolio, all of the highest quality, performed very well with share prices bouncing back from earlier weakness, an unthinking response to the lower oil price, repaying the conviction with which they continue to be held. These included Al Tayyar Travel Group, 25% higher as it reported consensus-beating fourth quarter results with pro-forma net income up 28% on the year. The company is a leader in the fast growing air travel market and has the financial strength to pursue its strategic objectives, which include a move into the hospitality business. Financial services group Samba, one of the largest positions in the portfolio, saw its shares rise 27% supported by a 22% rise in net profits over the year to the fourth quarter. Strong loan growth, low provisioning and much higher than expected non-interest income all impressed.
There were few negatives in January, with the laggards within the portfolio concentrated amongst those names that were held back by profit taking after a prolonged period of outperformance. These included the Saudi medical insurance group Bupa Arabia and the Egyptian tobacco group Eastern Company.
Akhilesh Baveja, Magna MENA Fund
