Market volatility squeezes Gulf fund profits

PROFITS SQUEEZED: A turbulent start to the year has eroded returns in Gulf stock markets and forced equity funds to downsize allocations to the GCC, Markaz said. (Getty Images)

A turbulent start to the year has eroded returns in Gulf stock markets and forced equity funds to downsize allocations to the GCC in an effort to preserve capital, according to Markaz research.

Markaz, the Kuwait Financial Centre research department, said that after rallying 10% in December, the returns of GCC Equity Funds succumbed to the worst market performance in twelve months, posting a negative 3% return for January.

The Saudi market plunged 13.4%, while Qatar and the UAE dipped 1% and 1.7% respectively, dragging the MSCI GCC Index, which tracks the performance of GCC markets, down 8.6%.

Saudi Arabia, Qatar and the UAE comprise 75% of the total market capitalisation of the GCC.

Kuwait, Oman and Bahrain bucked the trend, posting gains of 7.5%, 1.5% and 1,6% respectively, but due to the relatively slight weighting of the latter two markets, were unable to lend significant support to the overall regional performance.

Markaz said Khaleej Equity Fund responded to the volatility by pulling 11% of its Saudi allocation, while SIB GCC Equity Fund and AlBasha’er GCC Equity Fund both reduced their Saudi allocation by 8%.

The volatility inspired the usual “flight to safety” as investors steered clear of money managers and equities and parked funds in the relative haven of cash and bonds.

GCC mutual funds decreased their equity allocation to approximately 90% in January from 93% in December, the lowest equity allocation since July last year.

On average, cash held by GCC funds surged by from 6% to 9%. Bonds, relatively thinly traded compared to western economies, constituted around 1%.

Of the 24 GCC funds tracked by Markaz, only four returned positive figures for January.

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