After a slump in Middle East and Northern Africa (MENA) region funds, international investors adding to short-term downward pressure will take some time to venture back into the region.
Many fund managers expect downward pressure on markets to continue in the short-term as bad news must be further incorporated into prices, according to Standard & Poor's Fund Services' Annual Review of MENA funds.
"The region's much vaunted low correlation with the rest of the world's markets failed to materialise and all the major Middle Eastern markets fell significantly in recent months," says Roberto Demartini, lead analyst at S&P Fund Services.
Local exchanges in Dubai and Egypt were down more than 50% in 2008 to October. "The downward pressure largely came from international investors looking to exit what are, for them, off-benchmark positions," he says.
"Managers believe it will take some time for international investors to venture back into the region," says Demartini. Currently, cash, highly visible defensives and domestic plays are favoured, he adds.
Funds investing in the region reported returns ranging from around -20% to -50% for the 12 months to October 2008.
Performance for the GCC region was only slightly better with most funds returning -20% to -40%. The best performing funds were those with an Islamic mandate.
However, most managers are optimistic for the medium to long-term, with many tipping an upturn led by domestic investors, especially sovereign wealth funds.
The full MENA review is available at: www.funds.standardandpoors.com.
Paul Bruns and Elaine Parkes
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