Online payment gateway Payfort taps into the Middle East e-commerce market, only to find out that the sector will exponentially grow to $69 billion by 2020. This means, the numbers will have doubled in a span of few years.

This is good. A thriving sector is strongly emerging to favour the region’s economic development, which is largely fixated on natural resources for many years. Statista, for example, shows the all-round growth in the Middle East and Africa would reach CAGR of 11% between 2018 and 2022.

Today, young consumers (or millennials) are often attracted to the shopping experience derived from the use of seamless technology, and the additional service benefits that accompany with the experience. It seems, more than half of millennials, rather look for information from online retailer than in-store personal assistance.

In fact, a report by American global management consulting firm A.T. Kearney predicts the e-commerce growth in the Gulf Corporation Countries could reach its worth up to $20 billion by 2020 because “online commerce has performed particularly well” in the recent past “against a backdrop of economic, social and political challenges.” The numbers reflect an increase of more than $15 billion, from 2015, writes Damco Blog.

It is self-evident that this shift in consumer behaviour is prompting the need for strong, reliable logistics ecosystem—a system for tracking web purchase orders, and ensuring an on-time delivery of parcels across the region, which is the primal source of e-commerce expansion.

Ergo, a debate circling the question of what is the degree of logistics expertise in the Middle East—is still ongoing.

The next round of innovation in the Middle East e-commerce landscape will rise from integrating the logistics system with state-of-the-art technology. In the e-commerce world, new-age warehouses prescribed with advanced IT and digital solutions will help to smoothline business operations.

The Middle East and North African Transportation and Logistics Market, Forecast to 2018 report identifies the MENA region to have something like long-term business opportunities “in the areas of transportation, warehousing, and freight forwarding.” Another way to describe this is the region has transpired as “a major transshipment hub,” coupled with “strategic location advantage and improvement in air and sea port infrastructures,” as told on PR Newswire.

By example, some of the urban cities such as Dubai, Abu Dhabi, Riyadh and Jeddah have well established their logistics ecosystem. In fact, the governments “recognise logistics as an opportunity for their nations and top businesses to forge a profitable relationship,” writes Khaleej Times. And in this case, the government of Saudi Arabia will further strengthen the presence of the logistics infrastructure in Saudi Arabia 2030 vision.

In line with the infrastructure, Oman announced “through Royal Decree No. 24 of 2017” the build of a railroad stretching 400 kms to connect to the mineral mines in Salalah with Duqm. The project as part of the Oman national railway network has been designed to serve freight traffic as well “connecting the major ports at Sohar, Duqm and Salalah to the rest of Oman,” according to Lexology.  

But this is not it. The One Belt One Road initiative, where China and Oman have been working together to revive the ancient trading route—Maritime Silk Road. The initiative will reinforce trade in the region by enhancing the logistics infrastructure used to transport goods between China, Central Asia, Persia, Arabia, Africa and Europe.

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Suparna Goswami Bhattacharya

June 28, 2016: In a move that has surprised many, Saudi Arabia has scaled back its renewable power targets as the world’s largest producer of oil plans to use more natural gas, backing away from goals set when crude prices were about triple their current level.

The Kingdom has now brought down its renewable target from 50% of the energy mix to 10%. “Our energy mix has shifted more towards gas, so the need for high targets from renewable sources isn’t there anymore,” said Energy Minister Khalid Al-Falih. Generating more power from gas should help Saudi reserve more crude for exports, which otherwise gets burned to meet the Kingdom’s electricity demand.

Saudi Arabia has for years sought to develop gas resources to provide fuel for power plants and industries, and to free up more oil to sell overseas. Saudi Arabian Oil Co., the state-run producer, has also set up several ventures with international partners to explore gas.

Jeremy Leggett, founder and chairman, Solarcentury, UK’s largest and independent solar company, says, “The emphasis on gas is disappointing for various reasons. For instance, solar energy is cheaper than gas, and this has been shown in recent auctions.”  Leggett adds that it does not reflect well on the Kingdom which only recently announced a $2 trillion post-oil economy.

Also, the move will only help countries like India, China and US grow domestic solar industries that can lead the world in the emerging energy transition away from fossil fuels.

There are others who, however, do not read much into the announcement.

“This is simply a public statement that tries to reset the renewable energy targets set in 2012 under K.A.CARE. Once the details of the King Salman Renewable Energy Initiative are announced, we will know what to expect in the future from Saudi Arabia. They now have a chance to reset the Saudi renewable program and manage expectations,” says Browning Rockwell, global business executive, Horizon Tradewinds.

In 2012, K.A.CARE, the body tasked with weaning Saudi Arabia off oil for domestic power consumption, launched an ambitious plan for solar. It had proposed investing $109 billion in 41 GW of solar power to supply a third of the Kingdom’s electricity by 2032. An initial procurement round of 600 MW, split evenly between PV and concentrated solar power, was due to kick off in January 2013. However, the announcements remained only on paper and nothing concrete started.

The exact reason for the retreat on solar is not known.

“I feel until competitive solar energy storage is achieved by the Kingdom, gas will probably be prioritised,” says Rockwell adding that K.A.CARE was never really given any real authority to implement the announced projects.

Various reports suggest a lack of alignment between K.A.CARE and other potential stakeholders, such as the Saudi Aramco and King Abdullah University of Science & Technology.

Saudi Arabia’s proven reserves of gas rank third largest in the Middle East. According to figures by World Energy, proven natural gas reserves in the Kingdom are over 7 trillion cubic metres.

“Industrial expansion requires cheap and dependable energy source. Gas is a safe bet and does not have the inefficiency issues of solar. Storage of solar energy is still a problem,” says Graham Little, an independent energy and power expert.

The post Saudi Arabia cuts back its solar target appeared first on International Finance.

IFM Correspondent

June 9, 2016: The World Bank has downgraded its 2016 global growth forecast to 2.4 percent from 2.9 percent, which was projected in January.

The move was prompted by sluggish growth in advanced economies, low commodity prices, weak global growth and diminishing capital flows. According to the latest update of its Global Economic Prospects report, commodity-exporting emerging markets and developing economies have struggled to adapt to lower prices for oil and other key commodities, and this accounts for 40% of the downward revision.

Jim Yong Kim, president, World Bank Group, emphasised the importance of pursuing policies that boost economic growth. “Economic growth remains the most important driver of poverty reduction, and that’s why we’re very concerned that growth is slowing sharply in commodity-exporting developing countries due to depressed commodity prices,” he said.

Among major emerging market economies, China is forecast to grow at 6.7 percent in 2016. India’s robust economic expansion is expected to hold steady at 7.6 percent while Brazil and Russia are projected to remain in deeper recessions than forecast in January. South Africa is forecast to grow at 0.6 percent in 2016, 0.8 of a percentage point more slowly than the January forecast.

Kaushik Basu, chief economist and senior vice-president, World Bank said though economies in South and East Asia are growing solidly, but there is a simultaneous rise of private debt as well. “In the wake of a borrowing boom, it is not uncommon to find non-performing bank loans, as a share of gross loans, to quadruple,” he said.

Regional Outlook

East Asia and Pacific: Growth is projected to slow to an unrevised 6.3% rate in 2016, with China’s expansion expected to ease to 6.7%, as projected in January. The region, excluding China, is projected to growth at 4.8% in 2016, unchanged from 2015. Growth in the rest of the region is expected to be supported by rising investment in several large economies (Indonesia, Malaysia, Thailand), and strong consumption supported by low commodity prices (Thailand, the Philippines, Vietnam).

Europe and Central Asia: The continuing contraction in Russia is keeping the forecast growth rate for the region at 1.2% in 2016, a 0.4 percentage point downward revision from the January outlook. Geopolitical concerns, including flare-ups in eastern Ukraine and the Caucasus and terror attacks in Turkey, weigh on the outlook. Excluding Russia, the region is expected to expand at a rate of 2.9%.

Middle East and North Africa: Growth is forecast to pick up slightly to 2.9% in 2016, 1.1 percentage points less than expected in the January outlook. The downward revision comes as oil prices are expected to track lower for the year, at an average of $41 per barrel. The main reason for the slight improvement in regional growth in 2016 is an expected strong recovery in the Islamic Republic of Iran following the lifting of sanctions in January. An envisaged upturn in average oil prices in 2017 is projected to support a recovery in regional growth to 3.5% in 2017.

South Asia: Growth is forecast to accelerate to 7.1% in 2016, despite weaker-than-expected growth in advanced economies, which has dampened export growth. Activity has remained resilient as domestic demand, the main driver of growth, remained robust. India, the region’s largest economy, showed strengthening activity, as did Pakistan, Bangladesh and Bhutan. Most South Asian economies have benefitted from the decline in oil prices, low inflation, and steady remittance flows.

Sub-Saharan Africa: Growth is forecast to slow again in 2016, to 2.5%, down from an estimated 3% in 2015, as commodity prices are expected to remain low, global activity is anticipated to be weak and financial conditions are tightening. Oil exporters are not likely to experience any significant pickup in consumption growth while lower inflation among oil importers should support consumer spending. However, food price inflation due to drought, high unemployment and the effect of currency depreciation could offset some of this advantage.

The post World Bank cuts global growth outlook appeared first on International Finance.

Joel Kukemelk

February 11, 2015: As a Europe-based GCC equity fund manager, we are well-aware of the international investors’ views, questions, hopes and doubts when it comes to investing in the Arabian peninsula. So far, global investors have overlooked the fast growing Gulf region – partly also because over the last decade, energy rich Middle Eastern countries have built up a reputation as a source of funds for foreign companies, not as a place where foreign investors should invest themselves. But foreign investors are finally starting to notice the region. However, as the majority of the potential foreign investors don’t have any previous experience at all with the region, it’s a slow process and a lot of education has to be done.

MSCI upgrade to the UAE and Qatar in 2014 has definitely helped to garner more interest for the region (combined weight of 1.6% in MSCI EM index). Dubai winning the opportunity to host EXPO 2020 (first time ever in the Middle East), its airport eclipsing London’s Heathrow in international passenger traffic, Qatar hosting the football World Cup in 2022 (first time ever in the Middle East) are small but necessary milestones in demonstrating to the world that this part of the Middle East has reached an inflection point.

With traditional big emerging markets – BRIC countries – struggling to show growth, international investors are more willing to look at alternative places for long-term investments. GCC’s strong economic growth numbers coupled with sound fiscal management grabs the attention of the new foreign investors.

But nothing comes easy or quickly. Many European investors have developed strong perceptions when it comes to the Middle East and these are related to war, unrest, instability, constant geopolitical tensions, different culture, harsh desert climate, huge oil revenue dependency etc. To make matters worse, many foreign investors put all the Middle East countries in the same regional risk basket despite countries being completely different from each other. To break these dogmas, asset managers need to spend a lot of time introducing the region, but of course the GCC countries could help as well by distinguishing themselves more from the broader Middle East region.

GCC has a lot to offer to foreigners Let’s look at the numbers. GCC countries have 10% of MENA population but 50% of GDP. They hold 45% of world oil reserves and 20% of gas reserves. They have current account and budget surpluses though it is true that the 40+% fall in oil prices in 2014 might force them to tap their huge $2 trillion reserves (more than 100% of GCC GDP) in 2015 for the first time in many years, strong reserves built from energy wealth revenues, fixed currency rates, fast economic growth, multi-year long investment programs, young and growing demographics are exactly what long-term investors are looking for.

Even better, GCC stock markets have low correlation to other world stock markets making them an ideal component to a diversifiedinvestment portfolio. The biggest risks are sudden unexpected energy price falls (unlikely, but for example the 40% oil fall witnessed in 2014 continuing at the same pace in 2015) and escalations in geopolitical tensions. Potential benefits, however, strongly outweigh these risks.

GCC stock markets are already sizeable. The total market cap exceeds $1 trillion, i.e. 2% of global stock markets. Saudi Arabia makes up half of that and with the Kingdom expected to open up its stock market to foreign investors in the first half of 2015, investors can’t turn a blind eye to the region any more.

Foreign investors’ exposure to the region is light years away from what it should be going by the market capitalisation. Some emerging and frontier markets that are smaller have managed to attract much more foreign investor attention. For example, stock markets in Russia, Turkey, Indonesia, Singapore, South Africa are all smaller than GCC combined stock market cap, yet foreign investors are much more familiar with those countries. Due to long-standing active interest, there are a number of international ETFs and country-specific mutual funds being offered in the market.

If energy rich GCC countries want to attract more foreign investors, then proceeding with the integration process within the union and distinguishing themselves more from the wider MENA region can make foreign investors look at the Middle East differently and unbundle some countries from the others. This would mean lower risk premiums for countries with stronger macro numbers and long-term prospects.

Foreign vs regional-based GCC fund managers

Joel Kukemelk	Should foreign investors prefer regionally-based funds or international funds? Practice shows that when we are talking about country-specific funds, usually preference is given to locally based funds. But for a regional fund, it becomes trickier.First of all, a fund with a regional mandate can’t be locally-based since it can’t be simultaneously present in all of the countries. Secondly, if a regional fund is based in one member country, the investment manager is likely subject to home-market bias.

Thirdly, practice has shown that for a regional fund being based in one member country doesn’t guarantee better returns compared to the funds that are run outside of the region.

And lastly, when international investors are investing money in a far-away region whee they don’t have experience with a local manager, they might feel considerably more unease than investing in an internationally-based regional fund where a fund manager understands the needs of the local investment climate.

For example, European asset manager might be willing to invest in the Middle East more willingly when they can deal directly with fellow European asset management companies who can demonstrate long-standing experience in investing in the region. In short, an unknown region with a known asset manager is better than an unknown region with unknown asset manager.

The market for regional funds based outside the region itself has existed already for a long time and for a good reason. With growing foreign investor interest towards the GCC stock markets, it’s possible that additional foreign funds will be launched but today’s investment climate also offers a valuable opportunity for all the existing GCC fund managers to market themselves and the long-term potential of the whole GCC region among foreign investors.

Joel Kukemelk is Fund Manager of LHV Persian Gulf Fund

Also Read:

GCC can weather the fall in oil prices

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Suparna Goswami Bhattacharya

• Analysts expect oil price to come down to $43 a barrel in second quarter of 2015
• Oil companies look for ways to cut costs
• Big players go in for layoffs
• Oil price: No looking up for now

January 27, 2015: Headlines like the above continue to make news in all major websites around the world. Oil prices have been nose diving since the beginning of last September. The price is expected to drop further because of overproduction and a decline in demand from major consumers, like China. But if prices remain depressed, what impact will this have on major oil companies?

While lower prices is not bad news for everyone, especially consumers, oil companies are facing a tough time, probably their toughest since 2008. With a majority struggling to keep their profit margins up, oil firms are left with very little leg space to turn things around in their favour.

Big companies like BP, Shell, Halliburton are making headlines for reasons they will not be proud of — cutting jobs, stock prices going down. Most have been forced to lay off thousands of their employees.

Halliburton Co. (HAL), the world’s biggest provider of fracking services to oil companies, announced last month that it would dismiss 1,000 workers in Europe, Asia, Africa, the Middle East and Australia. The company had said that the decision was not an easy one, but necessary amid tumbling oil prices.

UK-based BP is also set to cut hundreds of jobs in its home country as well as the US. It also announced that it will cost $1 billion to streamline its business this year. The company is also expected to lose millions of dollars in earnings from Rosneft, Russia’s state-owned oil company, as a result of the plunge in crude prices and financial turmoil that has sent the rouble tumbling. BP has a 19.5% stake in Rosneft.

Thus, it comes as a little surprise that companies are reviewing their balance sheet. Aidan Heavey, chief executive officer, Tullow Oil, said: “In the light of current oil and gas sector challenges, including the commodity price environment, we are reviewing our capital expenditure and our cost base to ensure that Tullow is well-positioned for future success.”

For most companies, the bottom line is going to get majorly impacted. As a result, share prices of oilfield services companies like the Halliburton, Schulberger have also been majorly impacted. For example, Halliburton reported about 25% fall in its share price in the past six months.

When contacted, Halliburton in an email response, said: “We recognise there is a concern about the recent decline in commodity prices and expect reduced activity levels by our customers next year. However, Halliburton is well-positioned to handle any market environment. By remaining focused on the company’s proven strategies and processes, we will continue delivering the greatest value to our customers, shareholders and employees.”

For a few companies though, especially those in OPEC region, the impact will be much less, thanks to the good cash coffers built up over a period of time. “Most oil companies in the Middle East have not decreased their annual economy budget spend,” says Gaurav Moda, partner, management consulting, KPMG in India.

However, the same is not true for most companies in Iran, Columbia and Russia.

Many of these firms do not have the financial muscle to withstand a prolonged price fall. “For one, these economies are largely dependent on oil and gas. Also, most companies in this region have insufficient cash reserves,” remarks Moda.

Analysts predict a series of mergers and acquisitions as firms seek out rescue deals, and falling share prices create bargains for larger predators with deeper pockets.

According to Geoffrey Stains, an independent energy analyst from Norway, the big companies might use the opportunity to acquire the smaller ones. “The fact that companies in the UAE and Saudi Arabia have not gone for reduction in oil production to control the falling prices shows that they have enough cushion to survive another five-six months. Thus, for them this is the perfect time to acquire smaller companies and widen their portfolio,” remarks Stains.

For future projects, lower cost of oil will have to be taken into account. Also, drilling in high cost places like the Arctic and other deep water locations could be postponed for now as big companies look to cut costs.

To conclude, it can be said that as of now the continual fall of oil price remains real, especially since OPEC has refused to reduce production in order to maintain market share. Still, this will not have an impact on current projects. Experts say that projects that have already been rolled out will continue irrespective of the decline in oil price as investments have already been paid for.

Until OPEC cuts back on oil production and there is a renewed demand worldwide, investing in oil remains risky.

Also Read:

Saudi Arabia moving away from oil

Oil trade: No sign of prices going up

ECB puts €1 trillion on the table

The post Tough time ahead for oil companies appeared first on International Finance.

IFM Correspondent

January 5,2015:

In which countries does LHV have investment experience?

LHV has experience in investing across the world. LHV Asset Management holds the second biggest market share in Estonian mandatory pension fund market, which was launched more than a decade ago. We have a global mandate there, both for equities and fixed income. Due to our superior long-term returns in local pension fund market, we have managed to grow our market share aggressively with AUM more than €0.5 bn.

This global approach made it easy for us to launch UCITS compliant GCC equity fund – LHV Persian Gulf Fund – in 2008 since we felt that such a product was missing in the market. We have been very successful with this GCC fund ever since, beating local competitors and attracting foreign investors. LHV Persian Gulf Fund invests in all six GCC countries – the United Arab Emirates, Qatar, Saudi Arabia, Oman, Kuwait and Bahrain.

Why did you launch GCC equity fund and not MENA fund in 2008?

Our reasoning was that bundling together energy exporting and energy importing countries in the Middle East makes little sense. We wanted to give investors the opportunity to participate directly in the stock markets of the countries that invest funds received from selling their energy products back into the real economy

On which sectors does LHV Persian Gulf Fund focus on?

With LHV Persian Gulf, we want to benefit from the long-term trend where energy rich governments pump out oil and gas and invest the received proceeds in their economies with the ultimate goal of diversifying their economies away from oil and gas. We are bottom up stock pickers in the region putting a lot of emphasis on the quality and transparency of the managements but, all in all, this means that there are a lot of good investment opportunities in the region’s financial and real estate sector and services sector that caters to the region’s young and relatively high buying power population.

Going forward, in which countries do you see most potential in the GCC region?

We have strongest conviction in the UAE, Qatar and Saudi Arabia stock markets, which are our fund’s biggest holdings. The UAE is in a very strong cyclical upswing, Qatar and the UAE got into MSCI EM index in June 2014 and at the end of November 2014 their weights in the index were increased further (combined weight of 1.6% in MSCI EM index). Foreign investors who still have little exposure in the region are taking more and more notice of it. Saudi Arabia market is opening up in H1’15 and this is something we’ve been waiting for a long time since launching the fund seven years ago. Qatar holds FIFA World Cup in 2022 and Dubai has EXPO in 2020. All in all, GCC countries have $3.5 trillion worth of investment projects (200+% of GDP) that need to be executed in the next 10-15 years. This will continue to drive fast economic growth in the region for many years to come.

In the first half of 2015, the Saudi Arabian stock market will finally be accessible for foreign capital. What changes do you foresee for existing companies and for investors?

On one hand, this increases competition but on the other hand helps to bring additional investors to the region. With foreign investor participation in the GCC markets very low, we expect to see huge capital inflows to the region’s stock markets over the next few years. When it comes to GCC, instead of passive index-based investing I would advise a more active and bottom up approach in this highly retail investor driven market.

Saudi companies will need to increase their transparency and corporate governance and investor relations practices even further with increasing foreign investor participation. Some companies have high standards already today but some have still very basic standards.

How long did it take for you to settle down? How many years do you think it will be before you see serious competition from the newcomers?

Opening accounts in all the markets and getting familiar with all the peculiarities of the region took considerable time. It’s still frontier/emerging part of the world, although very fascinating. We’ll definitely see newcomers to the region but we have long-standing experience and a strong track record. We welcome all new entrants to the market as this helps make more investors aware of the long-term potential this region holds. And I’m sure the investors will eventually find the best investment vehicle to use when investing into the region. Hopefully this will bring some new investors to our fund as well, as we’ve been chosen as “Best Equity GCC Fund of 2012” and “Best Equity GCC Fund of 2013” by the highly regarded Zawya Thomson Reuters.

To cater to the high demands of institutional investors, we decided to re-domicile LHV Persian Gulf Fund from Estonia to Luxembourg. This is set to be complete in March 2015 offering European investors the opportunity to invest in the high growth GCC markets via a Luxembourg-domiciled fund with a long and strong track record.

Should GCC investors be worried about the 40+% oil price decline we saw in 2014?

During times when oil price fluctuations aren’t big, LHV Persian Gulf Fund’s correlation to oil is very low since the fund does not invest in the energy companies. But when oil price movements become large, correlation shoots up over the short term since it’s still an energy rich region. That’s exactly what we’ve seen. Oil price has decreased by over 45% ytd and this caused investor sentiment in the GCC to plummet over the short term effectively erasing all of LHV Persian Gulf Fund’s YTD returns in the last 3 months. As a result, valuations have turned really compelling now with 2015 estimated index P/Es are now in the range of 8x-12x across the GCC. As GCC countries have little debt and their sovereign wealth funds have assets of more than $2 trillion (more than 100% of GDP!), I strongly feel that they are very well positioned to weather the short-term downfall in energy prices without having a meaningful long-term negative effect on the GCC economies’ growth story and future potential.

Joel Kukemelk

Going forward, in which countries do you see most potential in the GCC region? We have strongest conviction in the UAE, Qatar and Saudi Arabia stock markets, which are our fund’s biggest holdings. The UAE is in a very strong cyclical upswing, Qatar and the UAE got into MSCI EM index in June 2014 and at the end of November 2014 their weights in the index were increased further (combined weight of 1.6% in MSCI EM index). Foreign investors who still have little exposure in the region are taking more and more notice of it. Saudi Arabia market is opening up in H1’15 and this is something we’ve been waiting for a long time since launching the fund seven years ago. Qatar holds FIFA World Cup in 2022 and Dubai has EXPO in 2020. All in all, GCC countries have $3.5 trillion worth of investment projects (200+% of GDP) that need to be executed in the next 10-15 years. This will continue to drive fast economic growth in the region for many years to come.

In the first half of 2015, the Saudi Arabian stock market will finally be accessible for foreign capital. What changes do you foresee for existing companies and for investors?

On one hand, this increases competition but on the other hand helps to bring additional investors to the region. With foreign investor participation in the GCC markets very low, we expect to see huge capital inflows to the region’s stock markets over the next few years. When it comes to GCC, instead of passive index-based investing I would advise a more active and bottom up approach in this highly retail investor driven market.

Saudi companies will need to increase their transparency and corporate governance and investor relations practices even further with increasing foreign investor participation. Some companies have high standards already today but some have still very basic standards.

How long did it take for you to settle down? How many years do you think it will be before you see serious competition from the newcomers?

Opening accounts in all the markets and getting familiar with all the peculiarities of the region took considerable time. It’s still frontier/emerging part of the world, although very fascinating. We’ll definitely see newcomers to the region but we have long-standing experience and a strong track record. We welcome all new entrants to the market as this helps make more investors aware of the long-term potential this region holds. And I’m sure the investors will eventually find the best investment vehicle to use when investing into the region. Hopefully this will bring some new investors to our fund as well, as we’ve been chosen as “Best Equity GCC Fund of 2012” and “Best Equity GCC Fund of 2013” by the highly regarded Zawya Thomson Reuters.

To cater to the high demands of institutional investors, we decided to re-domicile LHV Persian Gulf Fund from Estonia to Luxembourg. This is set to be complete in March 2015 offering European investors the opportunity to invest in the high growth GCC markets via a Luxembourg-domiciled fund with a long and strong track record.

Should GCC investors be worried about the 40+% oil price decline we saw in 2014?

During times when oil price fluctuations aren’t big, LHV Persian Gulf Fund’s correlation to oil is very low since the fund does not invest in the energy companies. But when oil price movements become large, correlation shoots up over the short term since it’s still an energy rich region. That’s exactly what we’ve seen. Oil price has decreased by over 45% ytd and this caused investor sentiment in the GCC to plummet over the short term effectively erasing all of LHV Persian Gulf Fund’s YTD returns in the last 3 months. As a result, valuations have turned really compelling now with 2015 estimated index P/Es are now in the range of 8x-12x across the GCC. As GCC countries have little debt and their sovereign wealth funds have assets of more than $2 trillion (more than 100% of GDP!), I strongly feel that they are very well positioned to weather the short-term downfall in energy prices without having a meaningful long-term negative effect on the GCC economies’ growth story and future potential.

You have won two IFM awards — Fastest Growing GCC Equity Fund & Best Fund Management Company in Estonia. What does this recognition mean to you?

It’s always good to receive international recognition. It validates our investment strategy and assures our clients that they have made the best possible choice when opting for our services.

About LHV

LHV was founded in 1999 and it offers its services in Estonia, Latvia, Lithuania and Finland. LHV Persian Gulf Fund was launched in 2008, it is publicly offered in Sweden, Finland, Norway, Estonia, Latvia and Lithuania. LHV Asset Management also manages mandatory (21% market share in Estonia) and supplementary pension funds in Estonia. LHV Persian Gulf Fund is a UCITS-compliant long-only GCC equity fund investing in the UAE, Qatar, Saudi Arabia, Oman, Kuwait and Bahrain. Fund manager Joel Kukemelk has a high A rating from Citywire and the fund has been chosen as ”Best Equity GCC Fund of 2012” and “Best Equity GCC Fund of 2013” by Zawya Thomson Reuters

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