Investing in turmoil

Regional stock exchanges have had a tumultuous year making it difficult for local investors to see where the value lies. But the region's emerging funds industry may have some of the answers.

Turmoil in the region's stock markets could spell boom time for the mutual fund sector.
Gulf stocks have suffered amid easing oil prices, global weakness in emerging markets and waning hopes of local currencies depegging.

But fund managers are hoping the tumult will prompt more investors to diversify their portfolios, as the market matures.

Imran Ahmed, managing director of Mashreq Asset Management argues that the region's fund sector has been misunderstood by some.

"The Gulf's fund industry has developed in the last few years and these years have also been quite volatile for the regional equity markets," he says.

When Mashreq launched its Makaseb Emirates Equity Fund in February 2005, interest from retail investors was strong, but the stock market crash of 2006 put a damper on demand. "A lot of investors got burnt and traumatised, even," Ahmed says.

At the same time, property prices across the Gulf soared.

"Investors have been conditioned, if you will, to find easier returns from real estate during the time that the mutual funds industry has developed."

As a consequence, the mass market asset management industry in the GCC has remained small by international standards.

The UAE is estimated to currently have about $6.5bn of assets under management. By comparison, Singapore asset managers currently manage around $814bn of assets.

Most Gulf markets are young and investors have typically not been used to paying fees for professional money management, and many have felt that investing is something that is easily done by oneself.

"These are the type of ideas that float around during a bull market and then in a bear market, when investment managers do outperform their respective benchmarks, many investors discount that outperformance as they feel that the fund managers have lost money anyway," Ahmed says.

"There is an element of investor education that the industry and the financial sector have to undertake before the mass affluent and retail investors will really come into mutual funds in a big way."

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