Makaseb invests in Arab shares and plans entry into Europe

08-Jul-2010

Interview by Sameer Hammad

Reda Gomaa, investment Manager at Makaseb, the funds company of Mashreq Bank, revealed that Makaseb is looking to double its assets under management by 2008 to reach $1.5 billion compared to the $700 million at the end of last year.

In an interview with Al-Bayan’s business desk, Gomaa said that Makaseb is now considering using the Dubai International Financial Center as a main platform and as regulator of investment funds that Makaseb plans to launch in the future.

Makaseb started its operations after obtaining a license from Central Bank of Bahrain with the aim of giving its business an international character.

Gomaa has relied on the promising investment and development opportunities in the markets of the MENA region, especially in the banking, real estate and oil sectors, in light of the economic boom in these countries.

How do you assess the present condition of local and regional financial markets?

Concerning the local financial markets, we have noted a divergence between Dubai and Abu Dhabi markets since the beginning of this year. The Abu Dhabi market has grown by 10% since the beginning of the year, while the performance of the Dubai market was negative during the same period. The reason for this is the strong presence of foreign investors in the Dubai market compared to Abu Dhabi, pursuant to the volume of shares available.

When the global economy declined, foreign investors quickly withdrew some of their investments to compensate for their losses in the global markets, which was the main negative factor on the Dubai market.

On the other hand, the negative performance in Dubai was related to the Emaar Properties share. Emaar Properties shares are the heaviest in the local index, following the company’s announcement of its profits, which were more stable during the first quarter of this year compared to the first quarter of last year.

As for the Abu Dhabi market, focus was on cement and real-estate companies as well as selected shares from banks. This was due to an optimistic view of the property sector in the capital which influenced investors to buy property shares.

Additionally, some of the large portfolios have intensified their investments in cement shares with low value, fuelling growth in the trade of market shares which reached record highs and lead to growth in the shares of prices that touched 50% in some cases.

As for the Gulf markets, especially those in Qatar and Oman, they have had the best performance in the region.

News concerning natural gas in Qatar has started to attract the attention of foreign investors, who are buying shares in banks and petrochemical companies. Qatar is a small state where the per capita GDP is among the highest in the world, and where the production of natural gas has provided funds to fuel spending on infrastructure. The need for further development of infrastructure is quite high in Qatar. It has led to the pumping of cash into banking and petrochemical shares.

Meanwhile, Oman had the best-performing market in the region in 2007, where growth rates and companies’ profits were almost lucrative. They drew foreign investors to pump cash into the Omani index, which recorded strong growth rates since the beginning of this year.

When you talk about “foreign investors” are you referring to institutions, individuals or banks?

When foreign investors consider investment in the region’s markets they do not invest on their own; they invest through specialized companies and banks, and hedge funds, which were seen as winning parties during the second half of last year due to their strategies that were based on swift entry and exit which were guided by fluctuations in the market. We cannot call them speculative funds – as in the case with individual speculators – since they rely on a defined financial system. The decline witnessed in the Dubai and Saudi markets in the current year is opening the door in the long-term for foreign investors to invest in the markets and exploit lucrative opportunities.

Don’t you think that the entry into the market of foreign funds that relies on quick profits is harmful to the markets?

No. The mere entry of foreign investors into the market is a positive thing since it diversifies the pool of investors as compared to the circumstances over past years, as the investment culture of foreign investors is larger and wider than that of local investors.

However, intense presence of these kinds of investors and hedge funds aggravates the impact of negative fluctuations in the market during a decline or a correction. At the end, it remains a positive step in terms of bringing in more cash, diversity, culture and strategy.

But we have in the past period witnessed a big decline in the volume of trade; is it accurate to, at least, assume that the decline in cash in the local markets is connected to the exit of foreign investors?

What is happening today is foreign investors are gradually – and without drawing attention – building new pricing rules. The negative entity, however, is that summer has set in on the markets and the biggest investors are shunning entry for a number of reasons, primarily because they are waiting for the results of the second quarter. Additionally, the majority of investors are currently focusing on property – which explains the price rise in the property market – as they are looking to diversify their investments. This, in turn, has impacted property shares in the Abu Dhabi market, which has recorded a big surge in prices against a backdrop of optimism in the capital’s market.

Are you implying that investors are not optimistic about the Dubai property market?

No, property prices in Dubai have risen at a rate of about 17% to 20%, depending on the area. But when we discuss property shares in Dubai we are mainly referring to the shares of Emaar and Arabtec, which are the most attractive shares in the market because of the record performance of the company. We are also referring to the shares of Union Properties, which is expected to start the delivery of its first properties in the next year, which will affect its businesses.

As for Emaar, the institutional investor today regards its shares to be entering a stage of new price setting, and they will be witnessing a strong performance in the coming period. This is based on the company’s performance expectations and the kind of projects it runs.

What is your main strategy At Makaseb today?

Our strategy at “Makaseb - Mashreq Bank” involves a defined and disciplined bottom – up investment approach, which revolves around comprehensive studies and analyses of target shares and their relative weights; we work in all Arab financial markets; our selection of strong shares takes into consideration the income, liquidity and financial status of the companies in question. We then conduct further screening of the perspective financial company with a qualitative assessment by meeting the management of the concerned company and get acquainted with the future strategy of the company itself. This process is followed by a third screening which involves an assessment of the shares as based on the research and studies conducted by a special internal body.

What are your focus sectors?

The sectors I focus on are those that can benefit from the strategies of their governments, especially in the UAE market. On top of these sectors, for example, are banks that finance property and infrastructure projects, and then come the developers and real estate companies and then those that link the local economy with foreign markets in terms of exports – primarily gas and oil, and water and electricity services.

What is the size of the assets that you manage today in the Makaseb funds?

It is $700 million and we are looking to double our assets under management by the year end.

At Makaseb, you started your operations through your license in Bahrain, but after the establishment of Dubai International Financial Center have you changed your plans?

Effectively, we have a presence today at the Dubai International Financial Center through Mashreq Capital, but today we are emphasizing that DFIC will be our new destination as an regulator of funds that Makaseb plans to launch in near future, thanks to the regulations and investment setting it provides.

Global System and Plans

Makaseb Funds Company BSC

When “Makaseb – Mashreq Bank” was established the main goal for it to be found on a global base. For this reason the external reviewers, auditors and custodians were selected such as Deloitte & Touch, Ernst & Young and HSBC in Kuwait, in order to add more transparency to Makaseb in front of its clients.

The company launched its first fund in Qatar in 2005. It is the only classified fund in Qatar, in addition to two funds in the UAE and one in the Pan Arab countries.

Currently, Makaseb is planning expansion outside the UAE, the Middle East and Europe regions.

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