Download MARKET PERFORMANCE June – August 2003

MENA: A Unique Opportunity
Capitalizing on the Petrodollar Windfall
This document is confidential and is intended solely for the use and
information of MAF-Trust.
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A Lucrative Investment Opportunity
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With oil prices close to USD 100 per barrel, the GCC
has benefitted from this with a windfall in excess of
USD 2 trillion, driving real GDP growth over 8.1% p.a.
between 2003-06 (versus global growth of 3.6%).
Growth in 2007 was estimated at 5.6%.
GCC has earned an additional USD 540 billion from
hydrocarbon exports in 2007 only.
The region’s GDP doubled between 2002 and 2007 in
nominal terms, reaching about USD 800 billion.
EIU forecasts a 6.2% CAGR through 2010 outpacing
the international markets and implying the region is well
set to maintain its growth at healthy levels. The GCC
economy by 2050 could be comparable in size to
Germany at USD 4.9 Trillion.
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The Oil Multiplier Effect
OIL
Attractive
capital
markets
Current
account
surplus &
FDI
Increased
corporate
activities
Mega
projects
Increased
corporate
earnings
Construction
boom
Increased
economic
activities
Increased
purchasing
power &
3savings
Higher
employment
& income
MAF TRUST LLC
Fundamentals Behind Growth
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The ME is experiencing an economic boom
born out of structural reforms and supported by
the following factors:
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Strong liquidity
Current account and fiscal surplus;
Low interest rate environment;
Weak US dollar;
Healthy population growth;
Favorable demographics (more than 70% of the
region’s population was below the age of 30).
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A Rational Utilization Of Wealth
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Unlike the previous bull oil cycles, this time
GCC economies have spent their petro-dollars
more wisely by:
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Repaying sovereign debt;
Investing heavily in infrastructure development;
Investing regionally and internationally with the aim
to diversify their economies and reduce their future
dependence on oil revenues;
Improving regulatory framework to support robust
economic growth;
Improving the level of education in this part of the
world.
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Impact Of Growth
 More projects. The GCC has USD 1.5 trillion
worth of projects in the pipeline over the next 5-7
years, of which 22% are hydrocarbons related.
 Increased overall consumer demand:
 Construction and RE sectors;
 More banking transactions;
 Durable and non-durable goods.
 Encouraged private sector participation. The
estimated private infrastructure investment
translates into 6.5x the GCC’s combined public
expenditure.
 More liberalization through opening up markets
to foreign investors. 6
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Why Buy The Middle East
 Uncorrelated play. Performance of the region is
uncorrelated to the rest of the world to a great
extent, making it an attractive diversification
story, especially during a period of credit crunch
in the US. Most assets are actually domestic
plays in the telecoms, banking, real estate,
building materials and construction sectors.
 Growth. Fuelled by high domestic capital
expenditure, the region is enjoying high ROEs
level (18%+), coupled with a double-digit EPS
growth.
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Why Buy The Middle East
 Currency play. Potential currency appreciation.
 Superior returns. The CAGR is 37.1% over the
past 5 years.
 Valuations. The region is now trading at a trailing
PE of 17 and forward PE of 14, roughly the
same level as the rest of emerging markets.
However, the growth is faster, the long-term
story is more powerful, and above all the amount
of domestic capital is significantly higher.
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MENA MARKET Multiples
TRAILING 12-MONTH EARNINGS
Country
P/E
P/BV
Div. Yld. Market Cap/GDP
GCC
Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
UAE
11.5
12.9
15.5
16.7
22.2
16.9
1.7
2.8
3.5
3.6
5.3
3.3
3.8%
2.2%
2.5%
2.7%
2.2%
1.7%
164.1%
211.9%
62.8%
156.2%
122.6%
56.4%
NON-GCC
Tunisia
Morocco
Lebanon
Egypt
Jordan
Simple Average
Weighted Average
13.0
30.5
13.0
20.3
20.9
17.6
18.4
1.5
8.3
1.4
4.8
2.6
3.5
4.2
3.4%
2.7%
3.7%
3.7%
1.5%
2.7%
2.3%
17.6%
127.1%
36.2%
98.3%
260.4%
Multiples based on 12-months earnings
GDP source: IMF
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Risks To The Investment Case
 Relatively high levels of inflation.
 Geopolitical risk. An event of war!
 Potential property oversupply in some markets
after 2010.
 Slower pace of liberalization and reforms.
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