Monday, July 14, 2008

More frontier investing

Barron's recently ran a feature on investing in the Middle East. (See a previous post on the topic here.) The growth prospects there can't be ignored.

Oil-rich economies like Kuwait, Qatar, UAE, Bahrain, Saudi Arabia and Oman are insulated from our energy-induced slowdown. "What the Middle East markets have is Chinese levels of GDP growth, above-average return on equity of over 20% and currencies that are gradually going to de-peg from a weak U.S. dollar," says Jonathan Garner, head of emerging markets for Morgan Stanley in London. The promise of the Middle East was reinforced again recently when the NYSE Euronext paid $250 million to buy a 25% stake in Qatar's Doha bourse.


Middle East markets generally now trade at about 16 times this year's earnings, with profit-growth forecasts of over 25%-30% this year and next. The figures are skewed by Saudi Arabia, a market mostly closed to foreigners, which sells at just over 21 times earnings even though profit growth is usually lower (15% to 20% this year). Kuwait and Bahrain trade at about 11 times this year's earnings, Qatar at 16 times, UAE at 13 times and Oman at 15 times. In the first half of this year Gulf markets (ex-Saudi Arabia) rose 3.2%, beating the MSCI Emerging Market index's loss of 12.7%, according to Merrill Lynch. The disparity also highlighted how uncorrelated these markets are to much of the rest of the world.
The feature lists several individual stocks for interested investors, a mutual fund and a couple of ETFs. The ETFs are; the Claymore BNY/ Mellon Frontier Markets ETF and the SPDR S&P Emerging Middle East & Africa ETF.