Emirates NBD looks to upsize Saudi equities fund to $100m this year

The asset management arm of Dubai's biggest bank is bullish on prospects of Saudi market

Emirates NBD Asset Management is looking to increase the size of its Saudi Arabian Equity fund to $100m by the end of this year ahead of kingdom's anticipated reclassification as an emerging market. Fayez Nureldine / AFP.

Emirates NBD Asset Management is looking to increase the size of its Saudi Arabian Equity fund to $100 million (Dh367m) by the end of this year, raising $75m in fresh capital, as it ramps up exposure to the kingdom’s $450 billion stock market ahead of its anticipated inclusion in FTSE Russell and MSCI’s emerging markets gauges.

"We hope to raise funds and take it [the fund] to $100m within this year," Salman Bajwa, the head of the asset management arm of Dubai's biggest lender, Emirates NBD, told The National on Monday in Dubai.

The conversion of the fund, previously known as Mena Equities Fund, is complete and all the required regulatory approvals are in place for distribution. The investment vehicle has $15m in legacy funds and the money manager is contributing another $10m as seed capital, Mr Bajwa, who helps oversee $4.8bn in assets at Dubai International Financial Centre-based firm, explained.

Saudi Arabia, the region’s largest economy and Opec’s biggest oil producer, is vying to get a nod from global index providers, FTSE and MSCI this year to be included in their emerging market gauges. FTSE is expected to make its decision later this month.

The announcement by the MSCI, whose emerging market benchmark index is tracked by investors with $1.7 trillion in assets, is expected in June 2018 and implementation, if reclassified, will happen in 2019.

Regional and foreign investors are already betting that the kingdom will be reclassified as emerging market by both index providers. After a lacklustre showing last year, the Arab World’s biggest bourse known as Tadawul, is up more than 6 per cent this year - above the average gain of 4.2 per cent for stocks from developing economies.

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Foreigners were net buyers of 5.5 billion riyals ($1.47bn) of shares for 11 straight weeks this year, Bloomberg cited bourse data as showing. Last week, they bought 1.36bn riyals in shares, more than in any other week since the news agency started compiling the data in October 2015. Financial institutions from Egypt’s EFG-Hermes to US-based JP Morgan Chase and Japanese money manager Nomura Asset Management, are all bullish on the Saudi market prospects.

A reclassification of Saudi equities by FTSE and by MSCI is expected to attract tens of billions of dollars in passive investments. Funds allocated to the kingdom’s market by active investors will be in addition to that.

At a "Emerging Markets: Fighting Fit" conference at DIFC on Tuesday Usman Ahmed, the head of investments at Emirates NBD Asset Management, said a nod from FTSE alone will result in $5bn to $6bn in passive money, while a favourable decision by MSCI could bring in $40bn by investors who track the indexes.

GCC markets missed a global equities rally last year because of rising geopolitical tensions, and subdued economic growth on the back of lower oil prices. Emerging markets stocks produced significant returns and the S&P 500 index in the US hit multiple records throughout 2017.

Tariq bin Hendi, the acting chief investment officer at Emirates NBD Group expects 2018 to be a better year for the regional equities, especially, Saudi Arabia, which plans to list about 5 per cent of  Saudi Aramco, slated to be the biggest-ever share offering in the world.

“The Aramco play is secondary. I think Aramco helps to generate a lot of interest which is good. But ... this MSCI upgrade will be fantastic for the Saudi market,” Mr bin Hendi told The National.  “It will reinvigorate what has been flat region markets. This should be a much better year.”