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Wed 13 Feb 2008 06:17 PM

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Fund managers optimistic on Arab market outlook

Markets capable of absorbing global volatility and delivering positive returns.

Fund managers remain optimistic about the outlook for markets in the Arab world in the face of the global economic slowdown, Standard & Poor’s said on Wednesday.

The ratings agency said managers investing in Middle East and North Africa (Mena) considered the region capable of absorbing global volatility and delivering positive returns this year.

The agency said despite last year's rebound from the 2006 market crash, managers thought the region still held attractive investment opportunities.

“Managers consider that despite the good performance in 2007, market valuations remain attractive relative to global markets and especially to other emerging markets,” said Alison Cratchley, Standard & Poor’s Fund Services lead analyst.

The ratings agency said average price to earnings (P/E) ratios in the region ranged from 9x-16x, compared with 15.5x for similar markets tracked by the MSCI Emerging Markets index.

The P/E ratio is a metric used by investors to determine the relative value of a company. A higher P/E multiple indicates a higher cost for each unit of income. A lower P/E ration - all else remaining equal - indicates greater value in a company.

Standard & Poor’s said GCC markets performed strongly in 2007, with Oman topping the table with a gain of 51.4%. The poorest performing market in the GCC was Bahrain, although the Gulf state still turned in impressive growth of 15.5%.

It said Egypt was the strongest non-GCC performer in the region, jumping 54.9%, while Jordan, the worst performer, saw growth of 20.9%.

Earnings growth is expected to be between 18% and 25% in 2008, and to accelerate in the future with non-GCC markets in the region expected to grow earnings between 15-20, the agency said.

Although Mena markets have proved to be more resilient to volatility than many of the broader markets, Standard & Poor’s still warned of more turbulent times in the months ahead.

“Despite this [resilience], the managers expect volatility to continue in the short-term,” Cratchley said.

Global market volatility continues into January, with a total of $5.2 trillion was wiped off world equity markets as emerging markets fell 12.44% and developed markets 7.83%, Standard & Poor’s said on Saturday.

Fifty of the 52 global equity markets ended last month in negative territory, with 25 of them posting double-digit losses.

Only Morocco and Jordan bucked the trend, posting positive returns of 10.2% and 3.1% respectively, while Egypt posted negative returns of 2.7%.