Silk Invest cuts Saudi, Qatar exposure
Dubai, February 2, 2011
Niche frontier markets manager Silk Invest is reducing exposure in Saudi Arabia and Qatar and moving to cash as it takes a cautious approach following political unrest in Egypt, a top executive said on Wednesday.
London-based Silk Invest, which invests in bonds and equities, does not see the Egypt crisis spreading to other Gulf states and will deploy more funds to the North African country once political stability returns to the region.
The instability in Egypt has played out in regional markets - already classified as 'frontier markets' and requiring a higher risk appetite - as bourses slumped and bonds fell after investors moved to reduce their exposure.
'We do not expect a contagion effect but we are raising cash and will probably deploy it once the dust settles,' Daniel Broby, chief investment officer of Silk Invest told Reuters in an interview.
'Its more an asset allocation decision.'
Silk Invest, which has about $150 million in assets under management across its equities and fixed income funds, has raised its cash allocation to 7 per cent, Broby said.
Funds investing in the Middle East and North Africa (Mena) are sitting on high cash piles due to a lack of conviction and viable investment opportunities.
'The beauty of cash is that you can take opportunities as they come. In any fund strategy you don't sit in cash for a long time,' Broby said.
The asset manager took its first exposure to Lebanon after the country's government was brought down by the resignations of Hezbollah ministers and their allies last month.
'To us, Lebanon has been tried and tested. Political risk in Lebanon is not going to come as a surprise to any investor,' Broby said.
The fund manager is cutting its exposure in Qatar - the best performing Gulf stock market in 2010 with a 25 per cent gain - as valuations have become expensive, Broby said.
Double-digit economic growth on the back of strong commodity prices in the state, coupled with a winning bid to host the soccer World Cup in 2022, has made Qatar the darling of international investors in the region.
'In Qatar ... if people are going to be moving away from the region, the heaviest overweight will get hit,' Broby said.
The executive is also cutting exposure to Saudi Arabia, home to the biggest Gulf bourse and hit by ripple effects of Egypt's crisis.
Silk Invest has four listed funds, including a fixed income fund which invests in both sovereign and corporate local currency and dollar-denominated bonds in the Middle East, Africa and the Caspian region.-Reuters