Company Announcements

                                                                                       30 September 2022

Gulf Investment Fund plc (GIF) quarterly report: 3 months to 30 September 2022

§ Net Asset Value (NAV) rose 3.7 per cent (S&P GCC Composite Index down 0.2 per cent)

§ Despite lower oil prices GCC growth continues

Performance in the quarter

Despite a sell-off in global markets during the quarter, Gulf Cooperation Council (GCC) equity markets were comparatively resilient (down 0.2 per cent) and outperformed MSCI EM (down 12.5 per cent).

GIF outperformed its benchmark (S&P GCC Composite Index) partly because of underweight positions in Saudi Arabia (which fell 1.0 per cent) & Kuwait (down 4.1 per cent) and an overweight in Qatar (up 4.1 per cent). Stock selection also contributed to the outperformance.

Positive performance came from holdings in Qatar Navigation (up 20.2%), Qatar Gas Transport (up 9.6%) and Emaar properties (up 11.4%). GIF received a special dividend from its holding in Mannai Corporation.

Holdings that contributed negative performance were Saudi Ceramic Company (down 10.7%), Banque Saudi Fransi (down 11.4%) and Saudi National Bank (down 4.2%).

GIF share price is trading at a 3.5 per cent premium to NAV (five-year average discount 9.6 per cent).

Changes to portfolio

During the quarter, GIF's exposure to healthcare and industrials were reduced to capture better opportunities elsewhere.  Healthcare exposure fell from 5.2 per cent to 0.0 per cent of NAV; industrials from 23.5 per cent to 17.5 per cent of NAV. 

GIF increased exposure to the financials, consumer discretionary and materials sector, as valuations looks undemanding coupled with attractive growth profile.

Financials exposure increased to 39.3 per cent of NAV from 32.7 per cent in 2Q 2022, mainly due to new holdings in Bupa Arabia, Company for Co-op Insurance (Tawuniya), Riyad Bank and Saudi British Bank. Increasing interest rates and increased credit demand should support GCC bank profitability. Elsewhere, healthcare transformation and enforcement of regulations in Saudi Arabia is fueling growth in the insurance sector.

Exposure to consumer discretionary was increased to 8.5 per cent of NAV from 1.8 per cent in 2Q 2022, with Alamar Foods and Seera Group Holdings as new holdings. Alamar Foods should benefit from a combination of increasing store count and sales per store as well as investment in technology. Seera is a beneficiary of Saudi's target under Vision 2030 to increase inbound tourists to 100mn a year and raise tourism to 10 per cent of GDP.

Relative to the benchmark, GIF is overweight Qatar (31.2 per cent vs. 12.1 per cent) and UAE (19.0 per cent vs 16.1 per cent). GIF is underweight Saudi Arabia (40.8 per cent vs benchmark weight of 59.9 per cent) and Kuwait (2.7 per cent vs 9.4 per cent).

Qatar is attractive from a top-down perspective, given its expansion plans and macroeconomic resilience but still trades at a discount to its GCC peers.

GIF continues to have a concentrated portfolio approach. The fund ended the quarter with 27 holdings: 16 in Saudi Arabia, 5 in Qatar, 5 in the UAE and 1 in Kuwait.

Outlook

Oil is still an important buffer for GCC economies as rising inflation and interest rates hikes unsettle other economies.  OPEC+ recently cut November oil production target by 2 million barrels per day. Travel and tourism activity increased. The outlook remains positive as growth is not only driven by the oil economy but also the recycling of government revenues into investment initiatives and, to a lesser extent, by household and business spending.

IMF forecasts Middle East countries in MSCI EM index (Saudi Arabia, the UAE, Kuwait, and Qatar) have surpluses between 25% to 48%, which are the envy of many major economies. IMF expects Saudi Arabia GDP to grow 7.6% in 2022. Although inflation continues to rise in much of the world to levels not seen for decades, GCC inflation forecast is relatively benign at 3.1 per cent in 2022 and 2.3 per cent in 2023 as per IMF Regional Economic Outlook April 2022.

While global investors generally are underweight Qatar, Kuwait, and Saudi, the GCC weighting in EM indexes should increase as more IPOs are listed, as governments sell stakes, and higher foreign ownership limits come in.