Investors in Mena should look beyond oil, gas and consumers

Ali Al Nasser, portfolio manager at Duet Group, believes the oil and gas story in the Gulf countries remains relevant. Mena, he says, is sitting on half of the world’s oil reserves and roughly 43 per cent of its gas reserves.

“We’re now at a stage where oil is not as easy to get out. It used to be as easy as going onshore and just drilling, but now companies have to move offshore. Abu Dhabi has the second largest offshore reserve field in the world by production and by reserves today,” he says.

He insists there are ways to take advantage of the oil and gas theme in spite of it often being overlooked by investors in favour of the consumer growth story. “But I think in Mena in five to 10 years, while the growth is going to come from the consumer, oil and gas is still going to be a very large percentage of the economy,” Mr Al Nasser adds.

He claims that in Mena it is usually a general lack of affordability and regulation that often prevent product consumption patterns from reaching developed market standards.

But with some of the richest economies in the world in the Middle East, affordability does not seem to be an issue.

For him, the evolution of consumers’ grocery shopping habits is an investment opportunity in Mena. “So what you want to be invested in is effectively companies that have an organised retail product or proposition, which means they have multiple store locations and a logistics network,” he argues. “I think that’s a very interesting theme because it’s a direct play on consumption. It’s not about the market growing so much as people changing the way they consume things. We think it’s a five-to-10-year view because the market is still very nascent.”

While both of these investment plays still provide opportunities for investors, there is certainly more to the region than oil and consumers.

Mr Al Nasser highlights the opportunities in the healthcare sector following the creation of an insurance market by the government in Saudi Arabia in 2009.

The other theme in the Middle East, according to Oliver Bell, portfolio manager at T. Rowe Price, is the banking sector.

Says Mr Bell: “These banks de-rated sharply over the past few years. Non-performing loans (NPLs) were on the rise and there were asset quality issues, but we think the banks have resolved these issues and they’re now at a stage where the NPLs are low, asset quality has improved and going forward we should start to see the pick-up in economic growth that should help the banks.”

His consumer exposure in the Middle East is to Saudi Arabia where, Mr Bell points out, public wages have risen following the Arab Spring.

“What led to the Arab Spring was high inflation, high unemployment,” he adds. “So you had places like Egypt and other parts of northern Africa really get hit by the Arab Spring. But in places like Saudi, Kuwait and Oman, they started sharing the wealth.

“Saudi is a good example where they’ve done that through increasing infrastructure spending and creating jobs for the local population.”

Mena poses an exciting prospect for investors with a medium- to long-term view, with some diverse themes already beginning to play out.

Ellie Duncan is deputy features editor at Investment Adviser

Experts’ perspectives

Ali Al Nasser, portfolio manager at Duet Group, picks the investment themes that stand out for him in Mena:

• Oil and gas

• Changing consumer consumption story

• Healthcare

• Egypt – on the basis that it is becoming more conducive to foreign investor participation

Oliver Bell, portfolio manager at T. Rowe Price, selects the themes he expects to deliver returns in the region:

• Real estate sector/tourism in the UAE – real estate has recovered strongly in the past 18 months, while tourism is booming, in Dubai in particular

• Banking

• Saudi Arabia – consumer story in the country