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Equity markets remain upbeat

Equity markets remain upbeat
Equity markets have started the year well, our flagship Dividend Leader Fund has registered a ytd return of 2.3% as of 16 Feb and our UAE Funds have risen by 2.5% to 3.7% depending on mandate. For global equity markets our favoured geographies are US and India with selective positioning in Europe. Oil prices remain stable despite some recent headwinds.

Global Markets
Global equity markets continued on a rising trend led by the US markets, S&P500 Index rose by 1.5% last week taking the index return to 5.0% year to date. US investor sentiment remains buoyed by a number of anticipated policy measures such as a possible reduction in the US corporate tax rates, fiscal stimulus to boost infrastructure spend and relaxation of banking regulation. US economic data released last week was generally strong with January retail sales and consumer price index increasing 0.4% and 0.6% respectively, US consumer confidence and consumer spending also remained upbeat. Euro Stoxx 600 Index rose by 0.77% last week whilst Japan’s Nikkei fell by 0.74%.

Oil price was down by 1.6% last week, posting its first weekly decline in five weeks. A strong dollar, increased drilling activities and record inventory levels in the US put pressure on oil prices despite continued efforts by major oil producers to cut output to reduce a global oil glut. In the US, the number of oil rigs increased by 6 to 597 rigs last week while the crude oil inventories rose to a record 518.1 mn barrels.

Regional Markets
For regional markets, earnings season has almost reached an end with a number of companies in the UAE announcing quarterly and full year results last week. Emaar Properties reported better than expected Q4 2016 revenues (+16% y-o-y) and net profit (+56% y-o-y) supported by solid revenues from property sales and the reversal of an AED 300 mn insurance claim. Arabtec and Drake & Scull International reported losses which contributed to the DFM General Index declining by 0.9% last week. Arabtec reported 2016 net loss of AED3.5 bn, mainly due to impairment charges against certain projects. Arabtec also announced the company’s plan to raise equity through an AED1.5 bn rights issue along with a capital reduction plan which will help the company to extinguish accumulated losses on the balance sheet and facilitate raising new capital. Proceeds from the rights issue will used to fund the completion of ongoing projects and also to pursue growth opportunities going forward.

In Abu Dhabi, Aldar properties reported better than expected quarterly profit led by one-off income from the government. Etisalat announced a 19.5% y-o-y increase in net profit supported by solid operations in the domestic market and by Maroctel.

In the UAE, the federal government approved a new visa system that is expected to bring major talent in to the country. Under the new scheme, the government will offer permanent residency for foreign workers, the new visa system is expected to support the real estate market in the country. According to the Tourism Department in Dubai, the number of visitors to Dubai grew by 5% y-o-y to 14.9 mn in 2016 with an impressive 5 year CAGR of 8% from 2012-2016 mainly led by a surge in tourist arrivals from China, Russia and India. In Egypt, the market was down by 3.5% last week with the Egyptian pound appreciating 9% against the US dollar.

Funds & portfolio positioning
Fund and portfolio positions have remained consistent with our previous note with the exception of a number switches for the dividend mandates as stock became ex-dividend. We continue to review our positioning in Qatar with two major events approaching i) annual dividends and ii) the FTSE EM event in March which is expected to bring inflows to the tune of USD 600mn.

In the UAE, we remain overweight, our position is supported by annual dividend season and relatively stable earnings growth. In the medium term, we expect the Saudi market to be supported by preparation for MSCI EM inclusion and we will likely build positions in Saudi post earnings and dividend season. Our current position in Saudi Arabia reflects selectivity which ranges from banks that are geared to benefit from NIM expansion (lower costs of funds and FED rate hikes), selective petrochemical names benefiting from wider margins and NTP plays. In Kuwait, other than the expected increase in the country’s weight in the MSCI Frontier Index, we see little in the way of major catalysts in the short term.

NBAD dividend mandates have slightly underperformed the benchmark but in absolute terms our MENA Dividend Leader Fund (MDL) is up by 2.3% followed by MENA Income & Growth Fund (MIGF) which is up by 1.33% and the Sharia Dividend Leader which is up by 1%. Our Sharia mandates have a higher exposure to Saudi and lagged non-Sharia mandates on a YTD basis.

Our UAE Trading Fund (UTF) continues to lead the GCC peer group space, touching a YTD return of 3.36% and similarly other aggressive mandates are also continuing to witness a good start to the year. MIGF fund distributed semi-annual dividend of 2.5% last week and we target to pay annual dividend in excess of 5% for 2017. Overall, we have reduced our cash position for most mandates to less than 5% and remain positive on regional and global markets.

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