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Mena managers believe now is the time to ‘buy-in’, says says S&P

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Fund managers in the Middle East and North Africa (MENA) region believe the worst is over and now is the time to buy in, according to Standard & Poor’s Fund Services in its latest review of the region.

Fund managers point to the high oil price, a fiscal surplus in most countries in the region and attractive valuations as evidence for this optimistic point of view.

“Most managers have moved on from highlighting the low historic correlation between this region and the rest of the world and have shifted their emphasis to valuations and growth potential at a time when the fundamentals offered by the Western world are far from compelling,” says S&P fund analyst, Roberto Demartini.

Fund managers believe that the rescheduling of the Dubai World debt in September 2010 was the catalyst for future growth. The teams at ING and Vision, for example, are becoming more positive on Dubai although they put it down primarily to bottom-up stock selection.

“Managers agree it is no longer a top-down call and the view surrounding Dubai companies is increasingly driven by fundamentals,” says Demartini. “Even some of the real estate plays, such as Emaar Properties, are coming back into fashion, although for very different reasons from the past, as managers point to the company’s potential to pay an attractive dividend yield now that its growth spurt is over.

“All managers we interviewed for our review like Saudi Arabia, the only country in the region with a sizeable population, strong resources and sufficient choice in terms of companies available to buy".

Qatar also continues to feature highly, although most managers have taken some profits this year. “Good fundamentals and strong reserves are enough, in most managers’ eyes, to offset the fact that Qatar is actually a very small country with an extremely limited population and a stockmarket that counts only a handful of liquid companies," says Demartini.

Fund managers also pointed out that the upcoming World Cup in Qatar would support infrastructure spending. Oman is also a fairly small market, but managers highlight how its fundamentals are becoming more favourable, as the country has managed to lower its marginal cost of oil production. This should support further investment. Elsewhere, expectations on Bahrain remain fairly subdued, and Kuwait remains the subject of debate. “On balance, most fund managers are willing to give it the benefit of the doubt,” says Demartini.

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