The relative valuation of the Middle East North Africa (Mena) region remains attractive, although earnings dropped markedly in 2009, a new report by Audi Capital said. It also said Mena fundamentals remain strong despite the problems that had plagued the regional market in the past year. The report titled “Mena Equity Strategy - 2010, Active Management to Dominate in 2010,” said “given the positive outlook for oil prices and the supportive expansionary fiscal and monetary policies, we expect earnings in 2010 to rebound by at least 25 percent offering attractive investment opportunities, when markets react to reflect such strong fundamentals.” It said last year the global turmoil took its toll on Mena markets. “Though the problem started in the US, Mena markets were severely affected by the global crisis, but did not fully join the recovery.” “Mena markets had witnessed severe losses with not a single market registering a full recovery,” said the report, adding that this market “is not one single bloc. Fundamentals differentiate country performance.” It noted that “tight debt markets and restricted credit policies by the banks in the Mena region had resulted in major problems for corporations that wanted to revolve their maturing debt in 2009.” However, it pointed out that “though the restructuring of the debt is a major concern for all investors in the region and should not be underestimated, the issue needs to be put in proper perspective.” Mena is rich with large oil and gas reserves and the outlook for oil is positive. There are relatively aggressive GDP growth rates, relaxed fiscal policy, coupled with huge expenditures on infrastructure projects. “Projects in KSA are still expanding in size where a major contribution comes from the plan championed by King Abdullah to build six new cities throughout the country,” the report said, noting that “these cities together will have four times the geographical area of Hong Kong and an economic output equal to Singapore's.” Moreover, the countries in the region had enough cash to weather storms, which “provides Mena governments major cushion to manage any emerging crisis.” For example, it said in the case of the UAE, it paid fully $4.1 billion of Nakheel in December. Moreover, Abu Dhabi provided a total of $20 billion support to Dubai when needed. In Qatar, QIA has participated in the capital increase of most Qatari banks when needed. “Qatar authorities bought the real estate portfolios and the domestic equity portfolios at favorable terms from commercial banks.” Focusing on the Saudi economy, the authors of the report said the largest economy in the region will play a vital role this year. “KSA is the largest economy in Mena region and most powerful player in the global oil market with a 22 percent share of global oil reserves and 13 percent share of global oil production.” “Oil is key driver for the economy, supported by the current positive outlook. Massive investment spending is underway - around $500bn between 2008-2012,” the report said. Despite the worldwide credit crunch, the Kingdom had a record budget in 2009 and then in 2010. “Government is confirming its expansionary fiscal policy with massive investment on infrastructure and education,” said the report. “Undoubtedly, the huge figures in the budgets over the past two years, is evidence of the confidence the leadership has in the outcomes of the economy and its ability to accommodate more, despite the shrinkage being witnessed in the global economy,” Dr Muhammad Al-Jasser, governor of Saudi Arabian Monetary Agency (SAMA) is quoted as saying in the report. “Fiscal spending on infrastructure projects had counterbalanced some of the pullback by the private sector spending. The total value of projects in KSA had not changed from 2008 to 2009 and many projects that were shelved in 2009 are coming back on the table in 2010,” the report added.
