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OPPORTUNITIES AND CHALLENGES IN THE REGION ASSET MANAGERS PRESPECTIVE. Ajay Kumar,CFA, FRM Head of Asset Management Qatar National Bank. OPPORTUNITIES AND CHALLENGES ARE ENTWINED. Opportunities Economic Drivers. Most Dynamic Era For The Region Sustained high oil prices - PowerPoint PPT Presentation
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OPPORTUNITIES AND CHALLENGES IN THE REGION
ASSET MANAGERS PRESPECTIVE
Ajay Kumar,CFA, FRM
Head of Asset Management
Qatar National Bank
OPPORTUNITIES AND CHALLENGES ARE ENTWINED
OpportunitiesEconomic Drivers
• Most Dynamic Era For The Region• Sustained high oil prices
• Growth,Government spending and Capex
• Diversity in Hydro carbon
• Liberalization and reforms
• Demographic profile
• Density of Wealth
• All Round Economic Growth• Physical and Social Infrastructure, Utilities, real estate
• Downstream HC, Ancillary units, Logistics
• Banking, Media, Entertainment and Tourism
Opportunities Capital Market
• Economy not fully represented• Privatizations and Govt., Divestments
• Low penetration of Institutional funds• Promising Emerging Market
• Low Correlations with other markets
• Opportunities for ALPHA
• Volatility
• Liquidity and Risk Capital
• State Patronage
• Demand for non conventional funding• High Risk Appetite
Challenges Economic
• Oil prices
• Currency Pegs
• Low savings Rate
ChallengesCapital Market
• Constricted Universe• Cross Holdings• Risks are Systemic• Limited Float• Investment Restrictions• Volatility• Market Asymmetry• Lack of Derivatives• Distorted Risk Premiums• Disclosures
ChallengesBehavioral
• Information Asymmetry
• Shortermism
• White Noise
– Sometimes your best investments are the ones you don't
make - DT
• Speculation, Herd Mentality
– A public opinion poll is no substitute for thought – WB
I'd be a bum on the street with a tin cup if the markets were efficient.
Warren E. Buffett
THANK YOU
Regional Volatilities
Annl Vol Kuwait
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
Dec
-04
Jan-
05
Feb
-05
Mar
-05
Apr
-05
May
-05
Jun-
05
Jul-0
5
Aug
-05
Sep
-05
Oct
-05
Nov
-05
Dec
-05
Jan-
06
Feb
-06
Mar
-06
Apr
-06
May
-06
Jun-
06
Jul-0
6
Aug
-06
Sep
-06
Oct
-06
Nov
-06
Dec
-06
Jan-
07
Feb
-07
Mar
-07
Apr
-07
May
-07
Jun-
07
Jul-0
7
Aug
-07
Sep
-07
Oct
-07
Annl Vol S&P 500
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
Dec
-04
Jan-
05
Feb
-05
Mar
-05
Apr
-05
May
-05
Jun-
05
Jul-0
5
Aug
-05
Sep
-05
Oct
-05
Nov
-05
Dec
-05
Jan-
06
Feb
-06
Mar
-06
Apr
-06
May
-06
Jun-
06
Jul-0
6
Aug
-06
Sep
-06
Oct
-06
Nov
-06
Dec
-06
Jan-
07
Feb
-07
Mar
-07
Apr
-07
May
-07
Jun-
07
Jul-0
7
Aug
-07
Sep
-07
Oct
-07
Annl Vol Qatar
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
Dec-04
Jan-05
Feb-05
Mar-05
Apr-05
May-05
Jun-05
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Annl Vol Saudi
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Dec
-04
Jan-
05
Feb
-05
Mar
-05
Apr
-05
May
-05
Jun-
05
Jul-0
5
Aug
-05
Sep
-05
Oct
-05
Nov
-05
Dec
-05
Jan-
06
Feb
-06
Mar
-06
Apr
-06
May
-06
Jun-
06
Jul-0
6
Aug
-06
Sep
-06
Oct
-06
Nov
-06
Dec
-06
Jan-
07
Feb
-07
Mar
-07
Apr
-07
May
-07
Jun-
07
Jul-0
7
Aug
-07
Sep
-07
Oct
-07
Correlations Sectors
Banks & Industry Banks & Services Industries & Services
Kuwait 0.563 0.541 0.781
Oman 0.488 0.511 0.442
Qatar 0.689 0.683 0.706
Saudi 0.728 0.633 0.777
Correlations Between Sectors in GCC Markets
Information Asymmetry
10.0
11.0
12.0
13.0
14.0
15.0
16.0
12/9/07 18/9/07 24/9/07 30/9/07 4/10/07 10/10/07 21/10/07 25/10/07 31/10/07 6/11/07 12/11/07 18/11/07
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
Increase in Prices and volumes observed - Price
rallying by more than 20%
22-Oct : Announcement of stake in a UAE Bank
No.
of
share
s
traded
2.5
3
3.5
4
4.5
5
5.5
8/23/2007 8/30/2007 9/6/2007 9/13/2007 9/20/2007 9/27/2007 10/4/2007 10/15/200710/22/200710/29/2007 11/5/2007 11/12/200711/19/2007
-
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
140,000,000
160,000,000
180,000,000
200,000,0008-Nov : Entering the Gulf Real Estate mkts
29-Oct : Strategic Stake in Real Estate Bank
Price rallying by more
than 45% before the
announcement
Oil PriceYearly Average Crude Oil Price OPEC Basket
15.53 16.8620.29
18.68
12.28
17.48
27.6
23.12 24.36
28.1
36.05
50.64
61.08
67.02
0
10
20
30
40
50
60
70
80
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Long Term - CAGR - 11.29%
CAGR - 24.27% since 2003
Average Budget Price
@6 bln output p.aand $ 40 budget, Surplus will 160 bln $ 07
Shortermism
A B C D E
Period Mean / n n^.5 std/n^.5 0-B E / D Pr. Of + return
1 year 1 0.333 1.00 0.357 -0.333 -0.9350 84.97%
1 Quarter 4 0.083 2.00 0.178 -0.083 -0.4675 68.08%
1 Month 12 0.028 3.46 0.103 -0.028 -0.2699 60.64%
1 Week 52 0.006 7.21 0.049 -0.006 -0.1297 55.17%
1 Day 365 0.001 19.10 0.019 -0.001 -0.0489 51.99%
Scaling Principle of Randomness
Our Favorite Holding Period is forever - WB
Correlations
Country Index Dubai Bahrain Kuwait Qatar Saudi S&P 500 FTSE 100 BSE Sensex
Abu Dhabi 0.744 0.359 0.513 0.481 0.445 -0.137 -0.059 -0.074
Dubai 0.372 0.491 0.435 0.461 -0.060 0.045 0.058
Bahrain 0.545 0.320 0.320 -0.032 0.013 -0.035
Kuwait 0.302 0.387 -0.077 -0.069 -0.191
Qatar 0.285 0.032 0.292 0.155
Saudi -0.216 -0.082 -0.024
Correlations GCC Markets with Other major Indices
GDP Growth
405.4
346.2
483.0
370.2
612.3
395.6
717.9
420.2
774.7
441.6
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
$ in
Bln
2003 2004 2005 2006 2007E
Nominal GDP Real GDP
Inflation
CAGR 17.6%
CAGR 6.3%
Govt. Expenditure
130.7
172.6
205.0
229.0
146.3
3.38
3.553.50
3.30
3.10
0.0
50.0
100.0
150.0
200.0
250.0
2003 2004 2005 2006 2007E
Years
Go
vt.
Exp
. B
ln $
2.80
2.90
3.00
3.10
3.20
3.30
3.40
3.50
3.60
Mu
ltip
le
Govt. Expenditure Multiplier
CAGR 15%