|Emirates NBD Asset Management Attracting investments to the region|
Since 2007, Emirates NBD Asset Management, a wholly owned subsidiary of Emirates NBD has been providing a full range of investment solutions offering exposure to both the MENA and global markets.
The asset management arm of Emirates NBD has recently won three awards at the 6th annual MENA Fund Manager Performance Awards 2015. Moreover, it has been named ‘Best Mixed Asset Fund’ at the Fund Selector Asia, FSA, awards. In this exclusive interview, Yong Wei Lee, Head of MENA Equities, Emirates NBD Asset Management gives his insight into the regional equity markets and potential investment opportunities and explains how ENBD AM is taking the MENA story to new markets.
Could you tell us about your role as Head of MENA Equities at Emirates NBD Asset Management?
As Head of the MENA (Middle East North Africa) Equities team, I am responsible for the oversight of all the public funds and portfolios managed by ENBD AM, to ensure that they deliver consistent superior returns while being managed within the investment guidelines of each mandate. Performance is very much driven by the stocks that we select, so I spend a lot of time on the investment process, together with our team of analysts, ensuring that the fundamental drivers and valuations of the stocks that we invest in are attractive and the risks well understood. I have been managing this asset class since 2007, so we have developed a tried and tested research process over the years, while witnessing several market cycles.
How did equity inflows change after MSCI upgraded the UAE and Qatar to Emerging Markets status?
We estimate that about US$ 4bn of foreign funds bought into the UAE and Qatar in the 12 months leading up to the upgrade by MSCI to the Emerging Market index.
What do you expect from emerging market stocks this year?
Our core expertise is in MENA equities and in this region, only the UAE and Qatar are part of the emerging market index. So my comments on emerging markets are within the scope of these two countries. I think that in the next 6 months, returns for these markets will be range bound at current levels, as oil establishes a floor price, which I think will likely be in the $50-60 range for Brent. The second half of 2015 should be more interesting, as the oil price is likely to appreciate due to curtailment of supply, which would bode well for these two markets. In addition to that, the Saudi market is poised to open its doors to foreign direct investment. This will eventually lead to the market becoming part of the emerging market indices, and is a positive and exciting development not just for Saudi Arabia but for the region itself.
How will the entry of foreign investors to the Saudi Arabian equity market influence the regional economy?
The impact of foreign equity inflows into Saudi Arabia will have a greater influence on the regional equity markets than the direct economy. We expect that within 12 – 24 months of the market opening up, Saudi Arabia would soon be part of several emerging market indices such as the MSCI Emerging Market Index. In that scenario, we will have three markets in the GCC included in the index, which would put this region firmly on the radar screen of international investors. It would be too big to ignore. As more and more foreign flows come in, these investors would demand a higher level of transparency and governance from listed companies, which will have an indirect positive impact on private companies as well.
Where do you see potential investment opportunities in the region?
The outlook for Saudi consumer stocks is attractive. Given that more than half the country is aged 30 years and below, and considering the emphasis which the government is placing on education, job creation and housing, the demand drivers for the sector will be robust for quite a while. In addition, the valuations are not demanding when compared to similar stocks at other emerging markets such as China, India and Brazil.
With a view that oil prices are poised to recover in second half of this year, Saudi petrochemical stocks would also be a good place to be invested as their prices have plummeted sharply, along with declining oil prices.
I am also quite positive on the outlook for Egypt. I think the reforms put in place by the Egyptian government will help attract foreign direct investments into the country. This would help create a healthy growth environment for many years to come. In addition, many of the listed companies are champions in their respective fields and would be a direct beneficiary of the growth in the country.
Finally, selected bank stocks in the UAE look attractive to me. The country is in a mid-cycle recovery. Hence, loans growth of between 5% - 8% along with falling provisions should result in attractive earnings growth for the next 12 – 24 months. Furthermore, valuations of some of these stocks are undemanding and are supported by attractive dividend yields.
Is the 2008 crisis still influencing the MENA economy?
One of the most positive impacts the 2008 crisis has had on MENA economies, particularly in GCC, is tighter discipline with regards bank lending. Credit criteria have become more stringent both at the bank level as well as with regulators post the 2008 financial crisis. In the UAE, a credit bureau has been set up and this has led to banks sharing data on the financial profile of a borrower. Central banks have also tightened debt burden ratios for borrowers and raised capital and general provisioning requirements for banks. These measures will ensure that in an economic downturn, banks will be far better insulated than before. At the borrower level, corporate or retail, the new lending criteria will prevent over extension of their balance sheets, protecting not just themselves but related businesses and counterparties.
At Emirates NBD, how do you prevent and protect investors in case of a new crisis?
There are two levels of protection, which we can implement for our investors during crisis periods. Firstly, at the asset allocation level, we can reduce the equity weighting and increase weighting to cash and fixed income, depending on the mandate. Secondly, we can reduce the weighting of cyclical stocks and raise weighting of defensive sectors.
How is the political instability in the region affecting the MENA market?
Surprisingly in the GCC, the markets have been extremely resilient, despite periods of geopolitical concerns. This is probably because tight security measures in these countries, coupled with partnerships with international forces, have helped to insulate them from the issues that have affected some of the surrounding countries.
The story is different for Egypt where internal political tensions did take a toll on the markets, although the situation has improved significantly over the last 12 months.
How is the UAE market benefiting from this instability in the region?
As the UAE has been well insulated from the political tensions affecting surrounding countries, liquidity from these affected countries tends to flow into the UAE along with business investment and population growth.
How is Emirates NBD Asset Management planning to grow in the coming years?
Assets have grown over 100% in the last two years, driven by institutional mandates, to over AED11bn making us one of the largest asset managers in the region. We recently launched a range of UCITS regulated funds, which will help us to access the growing number of international investors who are now becoming more interested in the MENA region. We will seek to continue this growth through a range of strategies, principally by focusing on regional institutional business, building further on our European and Asian platforms and working with our global partnerships to take the MENA story to new markets. ENBD AM is a key part of the overall Wealth Management piece for the Bank, achieving strong financial growth in 2014, coupled with a healthy balance sheet. It is significantly capitalized, highly cash flow positive and is set to continue building on its long standing excellent track record in generating superior returns for clients in order to grow further.
About Yong Wei Lee
Yong Wei is the Head of MENA Equities in Emirates NBD Asset Management, with oversight in overall portfolio management and research activities in the team. The MENA Equities team runs three public MENA funds; Emirates MENA High Income Fund, Emirates MENA Opportunities Fund and MENA Top Companies Fund. Of the three funds, Yong Wei is the fund manager for the latter two.
Yong Wei has over 10 years of experience in asset management. Prior to joining Emirates NBD Asset Management, Yong Wei was a Senior Analyst with Lion Capital Management, the largest private asset management company in South-East Asia. Lion Capital Management was formed through a merger with Straits Lion Asset Management and OCBC Asset Management. Prior to the merger, Yong Wei was an analyst/co-portfolio manager with Straits Lion Asset Management.
Yong Wei has a Bachelor’s degree of Engineering (Honors) – Mechanical and Production Engineering, from Nanyang Technological University. He is also a CFA Charter holder.