MENA fund managers turn positive on financials

Despite a lack of consensus among fund managers on whether the worst is over for the sector, financials bounced back strongly in the MENA region, according to the latest sector update published by Standard & Poor's Fund Services.

After being the main laggard in 2008 and 2009, the sector performed well in the first seven months of 2010, although the best-performing names have been the higher quality ones. "Some managers have turned more positive and have benefited from the re-rating of the sector," comments S&P Fund Services analyst, Roberto Demartini.

The team at SICO Arab Financial Fund, for example, saw its positive view on financials pay off, returning 10.6% against 1.8% to the end of July 2010. Meanwhile, Amani Al-Omani's team at Markaz maintained its strong record of outperformance on its Mumtaz fund, returning 1.74% compared to -0.66% for its KIC index benchmark mostly by maintaining a focus on banking.

Looking ahead, the team at Muscat Fund has increased its exposure to the banking sector on expectations of credit growth in the second half of 2010, no further deterioration of asset quality and on cheap valuations.

Fund managers are not all convinced the worst is over, however. "Others have reduced their exposure to financial names on concerns over the slowing balance sheet growth, flat to negative net interest margins and high credit costs," Demartini points out. Rajesh Venkiteswaran at Vision, for example, expects credit growth to be moderate across the GCC and has reduced exposure to banking.

Another area of diverging views was Kuwait, with the vast majority of managers continuing to be negative and losing out when the market did well early in the year. Amani Al-Omani at Markaz was an exception, benefiting from her position in Kuwaiti telecoms operator Zain, which saw its stock performing strongly following news of the sale of non-core assets.