Elnasr, managing director of asset management at NCB Capital (the investment arm of the National Commercial Bank - the biggest bank in Saudi Arabia), expressed a positive outlook on GCC and Saudi equities for 2008. Speaking at the Second Annual Forecast dinner hosted by the Bahrain CFA (Chartered Financial Analyst) Society, he said he was confident that any drop in oil production or prices would not impact the region as state budgets are balanced with underlying price assumptions of oil at less than $50. He said the current level of capital expenditure in the GCC could be supported even at $45-50, with any surpluses in excess of this level adding to liquidity or currency reserves. He was bullish on the Saudi, UAE, Kuwait and Qatar markets, while remaining neutral on Bahrain and Oman. He, however, also expressed concern that the US economic slowdown might result in pressure on oil prices, similar to the US recession in 2001, but believed that OPEC would initiate supply cuts to stabilize prices. Favorable demographics, a large domestic market, companies moving up the value chain, the deregulation of industries, focus on education and improved utilization of state wealth were pointed out as factors that are helping the region to capitalize on the economic prosperity and driving growth forward. Overall, he expressed a bullish outlook given that projects in the region, currently estimated at more than $1.63 trillion, would generate derived business opportunities for businesses and consumers. Seif-Elnasr said that it would only be a matter of time before an adjustment to the currency peg is made, as governments were likely to opt for this step as a mechanism not only for controlling inflation but also to facilitate their growth and diversification efforts. In his opinion, all things considered, GCC markets provide investors an interesting investment opportunity with valuation ratios in line with emerging markets, despite having higher levels of profitability. He pointed out that equities in the region are structurally under-owned with the MSCI Arabia Index estimated to have a potential weightage of 8.7 percent in the MSCI Emerging Market index, which is larger than India's 6.8 percent. For Saudi Arabia, he said, the free float weight of the Kingdom is as high as 56.7 percent of the MSCI GCC Index - twice the size of Kuwait's weight and over four times larger than the UAE's free float weight. Saudi equities would on a free float basis represent a potential weight of 4.3 percent in the MSCI EM index with direct foreign ownership in the Kingdom currently at zero. He added that the low foreign investor ownership in GCC markets would prevent markets in the region exhibiting the volatility being seen in other emerging markets such as India and China, driven by fears of a US recession. __
