The grass is always greener on the other side of the desert. Sovereign wealth funds based in the West Asia have invested billions in US and European firms, but lately their own stock markets have been a better bet.
Of course, these markets are in their infancy and still come with plenty of risk. But at least for now they look to be a relatively safe haven.
Plunging global equity prices have left stock investors with few places to hide. Even traditionally defensive sectors, such as food and consumer products have been walloped. But one region is still standing amidst the wreckage.
West Asian stocks, as measured by Morgan Stanley Capital International (MSCI) GCC index, are up more than 6% since the start of the year. Some of the region’s constituent markets, such as Qatar and Kuwait, have racked up double-digit gains in just two weeks.
High oil prices have been an obvious boon to the region, but there are other reasons for its appeal. One is its lack of correlation with the rest of the world. While most global markets soared in 2005 and 2006, the GCC index went through a nasty bear market, losing more than half its value. On average, global emerging markets are roughly 70% correlated with the S&P 500, while for the West Asia the match is a negligible 10%, according to T. Rowe Price.
The Baltimore, Maryland-based fund shop launched the first Securities and Exchange Commission (SEC)-registered fund investing in the region in September. What’s more, Middle Eastern equities look like decent value. Stocks in Doha and Dubai, for example, are fetching just 10 times estimated earnings compared with multiples of more than 20 in more widely followed markets such as China and India.
Of course, the region remains vulnerable to a drop in oil prices and to geopolitical risk. And beyond a handful of telecoms, banks and property companies, the pickings are slim. But at least for now they look more promising than many of the alternatives.