Legal Entity Identifier: 2138009DIENFWKC3PW84

21 October 2021

Gulf Investment Fund plc ("GIF" or the "Company")

Q3 2021 Investment Report

Gulf Investment Fund plc (LSE: GIF), today issues its Q3 2021 Investment Report for the period 1^st July 2021 to 30^th September 2021, a pdf copy of which can be obtained from GIF's website at: www.gulfinvestmentfundplc.com.

GIF seeks exposure to emerging investment opportunities and positive fundamental factors in the Gulf Cooperation Council ("GCC") region that have not yet been priced in by the market. The Company invests in quoted equities in the region as well as companies soon to be listed. The Investment Adviser invests using a top-down approach monitoring macro trends and identifying promising sectors and companies in GCC countries.

The Gulf Cooperation Council comprises: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

GIF Quarterly Report

3 months ended 30^th September 2021

Highlights

Ø Net asset value rose 6.6 per cent (S&P GCC Composite Index up 7.0 per cent)

Ø Year to date, NAV is up 26.8 per cent (S&P GCC Index rose 33.6 per cent)

Ø Shareholders received 2.46c per share dividend in the quarter

Ø Share price trading at a 3.3 per cent discount to NAV (five-year average discount of 12.3 per cent)

Ø GCC economies continue on recovery path

Performance

GIF NAV rose 6.6 per cent in the quarter, while the fund's benchmark, the S&P GCC Index, was up 7.0 per cent. A dividend of 2.46c per share was paid on 17 September 2021.

So far in 2021, GIF underperformed its benchmark by 6.8 per cent, largely attributable to the fund being underweight in Saudi Arabia, where large stocks, especially banks, rallied following announcements about the $1.3 trillion Shareek program aimed at boosting private investment.

On 30 September 2021, the GIF share price was trading at a 3.3 per cent discount to NAV. The five-year average discount is 12.3 per cent.

GCC countries strong economic growth

Table: IMF Real GDP forecast 2021 and 2022

Source: Data as per IMF World Economic Outlook October 2021

Gulf Cooperation Council (GCC) economies are usually part of the late recovery, evident from the chart below as GCC markets have outperformed emerging and developed markets. We believe GDP growth in GCC countries will continue to build momentum on the back of higher oil price and commodity price rally, a focus on developing the non-hydrocarbon sector and sizeable government spending on infrastructure projects. Therefore, we believe that the GCC economies will continue to provide superior growth compared to advanced and emerging economies.

Please refer to the IMS on the Company's website https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/ for a Chart: GCC markets outperformed.

GCC, post-lockdown recovery in 2021 has been stronger and more consistent than developed economies. The S&P GCC Composite index rose 30.1 per cent, while the MSCI World index rose 12.0 per cent and MSCI EM index was down 3.0 per cent. Most of the GCC markets have reported double digit gains with Abu Dhabi and Saudi Arabia leading the pack gaining 52.6 per cent and 32.3 per cent, respectively.

During the quarter ended 30 September, the S&P GCC index gained 6.3 per cent, while MSCI World Index was marginally down 0.4 per cent and MSCI EM Index was down 8.8 per cent. The price of oil (Brent) rose 4.5 per cent during the quarter to ~US$79 per barrel, helped by stronger-than-expected growth in demand for crude oil. Of the GCC markets, Abu Dhabi continues to be the top performer, up 12.6 per cent. Kuwait, Bahrain and Qatar gained 7.5 per cent, 7.4 per cent and 7.0 per cent, respectively. Saudi and Dubai markets rose 4.7 per cent and 1.2 per cent, respectively. Meanwhile, Oman ended the quarter down 3.0 per cent.

GIF portfolio structure

Country allocation

GIF's weightings in GCC markets are based on the Investment Adviser's assessment of outlook and valuation.

Compared to the benchmark, GIF remained overweight Qatar (41.4 per cent of NAV vs. the S&P GCC Qatar weighting of 11.6 per cent), overweight UAE (22.3 per cent vs S&P GCC of 12.4 per cent). GIF is underweight Saudi Arabia (28.7 per cent vs S&P GCC weighting of 63.1 per cent) and Kuwait (2.6 per cent vs S&P GCC of 10.4 per cent). The Fund's cash weighting stood at 5.0 per cent (vs 1.8 per cent as of 30 June).

During the quarter, the Fund's exposure to Qatar increased by 6.0 per cent, while exposure to Saudi Arabia was reduced by 11.2 per cent as valuations looked stretched.

The Fund's overweight position in Qatar is linked to its macroeconomic resilience, growth prospects and attractive valuations. Qatar is trading at a discount with 1-year forward P/E multiple of 14.9x compared to GCC average of 17.15x. Valuations are inexpensive considering the North Field Expansion (a 64 per cent increase in LNG production) and stronger economic activity as FIFA World Cup 2022 approaches. Additionally, Qatar's plan to allow full foreign ownership of listed companies could attract as much as QAR5.4 billion in passive inflows. We believe companies in Qatar will provide reasonable upside to shareholders.

The Fund continues to be underweight and selective in Saudi Arabia due to relatively expensive valuations. Following Shareek program announcements, major Saudi stocks (esp. banks) rallied. The Saudi market is trading on a P/E multiple of 27.86x as compared to MSCI EM multiple of 15.47x (as at 30 September 2021).

GIF ended the quarter with 27 holdings: 9 in Saudi Arabia, 8 in Qatar, 9 in the UAE and 1 in Kuwait (vs. 31 holdings in 2Q2021: 18 in Saudi Arabia, 7 in Qatar, 5 in the UAE and 1 in Kuwait).

Please refer to the IMS on the Company's website https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/ for a Chart: GIF Country Allocation as of 30 September 2021.

Portfolio

Top 5 holdings

Source: QIC

Phased unlocking of GCC economies with intensified health measures has helped economic activity to revive and should gain momentum moving forward. The Investment Adviser seeks to identify companies which are likely to benefit from the expected recovery. However markets will remain volatile in the near term and the Investment Adviser's focus remains on companies with solid balance sheets and stable cash flows, at attractive valuations.

Commercial Bank of Qatar (CBQ) is the second-largest commercial bank in Qatar. As part of its 5-year turnaround strategy, it is strengthening its balance sheet by cautiously managing its risk exposure. Under its diversification strategy, CBQ has expanded its GCC footprint through strategic partnerships with associated banks, which include the National Bank of Oman (NBO) in Oman, United Arab Bank (UAB) in the UAE and its subsidiary Alternatifbank in Turkey.

Masraf Al Rayan (MARK) is a Sharia-compliant bank, offering a comprehensive range of products and services - in corporate and personal banking, asset management, treasury and trade finance. The Bank has expanded its operations in United Kingdom through its subsidiary Al Rayan Bank PLC. It enjoys robust capitalization and one of the lowest NPLs in the sector. The merger with Al Khalij Commercial Bank is expected to strengthen revenue streams and bring cost savings.

Qatar Gas Transport Company (Nakilat) is a leader in energy transportation, with the world's largest LNG shipping fleet of 74 vessels. It is responsible for transporting the country's LNG production to its global customers and is integral to the state's LNG supply chain. Transition of fleet management in house and the massive North Field Expansion project is expected to generate further growth. In addition, major ship building capacity agreements are to be signed to build 100+ vessels worth over QAR70 billion. Nakilat is well placed to be a beneficiary of this LNG expansion.

Leejam Sports Company is a Saudi Arabia-based company, engaged in the construction, management and operation of sports and recreational centers. Its fitness centers are operated under the brand Fitness Time, located in Saudi Arabia and United Arab Emirates. It is also involved in the wholesale and retail trade of sportswear and sports equipment for basketball, football, tennis and other sports.

Industries Qatar (IQ) mainly operates in the steel, petrochemical, and fertilizer sectors. The rise in commodity prices along with the growth momentum prompted by the easing of lockdown should have positive impact on the company's earning trajectory. In addition, we expect a favorable financial impact on IQ's earnings following the acquisition of the remaining 25 per cent stake in its Fertilizer JV "QAFCO" and the extension of feedstock gas arrangements until 2035. Furthermore, IQ may seek similar opportunities, acquiring remaining stakes in other JVs which would give the company more exposure to petrochemicals.

Sector allocation

Please refer to the IMS on the Company's website https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/ for a Chart: GIF Sector Allocation as of 30 September 2021.

The financial sector remained the largest sector allocation for GIF at 33.6 per cent of NAV. The Investment Adviser believes that most GCC banks have strong capital and liquidity buffers to safeguard them from systematic risk. However, lower interest rates along with an expected increase in non-performing loans could impact profitability in the near term. As a result, GIF remained underweight the sector.

The Investment Adviser increased exposure to the energy sector to 6.9 per cent of NAV (vs 2.9 per cent in 2Q 2021), while investments in the material sector were all sold.

OPEC+ to raise output

The OPEC+ plans to add about 400,000 bpd of crude each month through next year and phase out                 5.8 million bpd of existing output cuts implemented during the covid crisis last year. OPEC+ expects global oil demand to rise by 6 million bpd in 2021.

Please refer to the IMS on the Company's website https://www.gulfinvestmentfundplc.com/publications/quarterly-reports/ for a Chart: GCC countries fiscal breakeven oil price (2021E).

Qatar is anticipated to have the lowest fiscal breakeven oil price (the price at which government will balance its books) of US$43.1, in the region. The increase in oil price, with levels now nearing or above most GCC fiscal breakeven prices, should provide some fiscal stability to GCC states. High oil prices, if sustained during 2021, should reduce the borrowing needs of GCC governments and increase resources available to fund economic-diversification projects.

GCC: back to growth

With the revival of production, trade and travel worldwide amid the rapid vaccination rollout, the prospects for an economic recovery are firmer now than at the start of the year, driven not only by an expected rebound of global oil demand and higher oil prices, but also by continuing and enduring efforts by the GCC countries to reform and diversify their economies.

Saudi Arabia launched the National Investment Strategy (NIS), a key enabler to deliver on Vision 2030. The strategy includes several initiatives with an objective to raise the private sector's contribution to GDP to 65 per cent; increase the contribution of FDI to GDP to 5.7 per cent; increase the contribution of non-oil exports to GDP from 16 to 50 per cent; and reduce the unemployment rate to 7 per cent. Moreover, the new strategy seeks to draw up comprehensive investment plans for sectors, including manufacturing, renewable energy, transport and logistics, tourism, digital infrastructure and health care. The Kingdom will invest more than SAR12 trillion (US$3.2 trillion) by 2030 to spur local economic growth, of which the Shareek program initiatives will inject SAR5 trillion, the Public Investment Fund is set to contribute SAR3 trillion, and the remaining SAR4 trillion will come from investments facilitated by the NIS.

Saudi Arabia also launched the National Transport and Logistics Strategy mainly aimed at positioning the kingdom as a global logistics hub. The Kingdom will invest more than US$133 billion by 2030 to expand its transport sector and has plans for more than 300 projects, including new flagship airline, to expand the sector. Additionally, the Saudi Crown Prince announced US$13 billion tourism strategy to develop Saudi Arabia's Asir region into a global tourism hub. It aims to attract more than 10 million visitors by 2030. The IMF upgraded the country's 2021 economic growth forecast to 2.8 per cent from 2.4 per cent driven by the oil sector.

Saudi Arabia declared initiatives to support Industrial and Tourism sectors. It has launched the                      4th Industrial Revolution (4IR) Center in the Kingdom in partnership with the World Economic Forum (WEF). The center aims to harness the technologies of the 4IR such as AI, blockchain, self-driving cars, drones, the Internet of Things and smart cities for the benefit of all. Saudi authorities also announced a public-private partnership to set up a US$15 billion technology fund, to advance the digital infrastructure in the Kingdom. Advanced technology from the 4IR is expected to generate around US$1 trillion in new revenue streams for the Saudi economy.

Saudi Arabia announced pre-budget statement with deficit narrowing to 2.7 per cent of GDP in 2021 and 1.6 per cent in 2022 amid higher crude revenues. It projects a 0.8 per cent surplus in 2023 the year by which government has long said it aims to balance the budget. Total debt has surged to over 30 per cent of GDP this year and is projected to decrease to 27.6 per cent by FY 2024. The kingdom is focused on issuing debt with fixed yields in order to mitigate the risks of variable yields and plans to enhance government reserves as budget surpluses are projected starting FY 2023.

Source: Saudi Ministry of Finance

The UAE government announced "Projects of the 50" an initiative to boost the country's competitiveness and attract AED550 billion in foreign direct investment by 2030. The "Projects of the 50" is a series of developmental and economic projects that includes establishing 500 national companies equipped with Fourth Industrial Revolution Technologies, increasing the contribution of the manufacturing sector by 30 percent in the next 5 years, achieving 10 per cent annual increase in exports, and spending up to AED24 billion on getting 75,000 Emiratis into private sector jobs.

Kuwait intends to implement largest government restructuring in its history, which includes plans to merge ministries, abolish others and create new strategies as part of the restructuring roadmap over the next four years. The plan also aims at reviewing investment, foreign ownership, bankruptcy, and public-private partnership laws. These steps are expected to maintain control over public spending and lead to efficiency gains across the public sector.

Qatar is anticipated to post a strong growth rebound among the GCC, with LNG demand underpinning medium-term prospects. The growth is likely to be spurred by construction work on the giant North Field Expansion Project as Qatar Petroleum is expected to sign the bulk of its project-related deals by the end of 2021. The liquified natural gas (LNG) investment pipeline along with continued spending on infrastructure projects for FIFA World Cup 2022 is likely to increase non-hydrocarbon GDP growth. Furthermore, the World Bank estimates Qatar's fiscal deficit to decline in 2021 before turning into moderate surpluses in 2022-23 as higher natural gas prices are expected to increase revenues. Additionally, Qatar is expected to record trade and current account surpluses on the strength of LNG exports.

GCC capital markets recovering

The GCC IPO market continued to boom, as the region witnessed a flurry of IPOs. Abu Dhabi National Oil Company (ADNOC) raised more than US$1.1 billion through an IPO of ADNOC Drilling Company. ADNOC Drilling's IPO is the second major listing this year in Abu Dhabi and is the largest on the Abu Dhabi stock market. In Saudi Arabia, ACWA Power International, one of Saudi Arabia's main vehicles for building renewable energy projects, raised up to US$1.2 billion, the biggest Saudi IPO since Aramco. Additionally, Saudi Telecom Company raised around US$966 million through an IPO of Arabian Internet and Communications Services Co. The outlook for the region's IPO activity remains positive with continued improvement in economic conditions and strong performance of oil prices seen so far in 2021.

GCC Vaccination Update

Source: Official data collated by Our World in Data as of October 1,2021.

Other Recent Developments

Saudi Arabia Rating Update

Rating agency, Fitch revised Saudi Arabia's outlook to stable from negative and maintained the sovereign's rating at A, while forecasting a drop in deficit to 3.3 per cent in 2021 from 11.2 per cent in 2020.

Kuwait Rating Update

S&P downgraded Kuwait's sovereign credit rating to 'A+' from 'AA-' with negative outlook amid rising deficit and the absence of a comprehensive financing strategy to augment its depleted GRF.

Kuwait Orders to Reduce Spending by at least 10 Per cent as Deficit Widens

The Kuwaiti Cabinet has ordered all government entities to cut spending by at least 10 per cent from the current fiscal year budget to bridge its widening deficit, after recording a budget deficit of US$35.5 billion in 2020-21.

Bahrain to Raise VAT to 10 Per cent

Bahrain plans to double its Value-Added Tax (VAT) to 10 per cent in a bid to boost state revenue and curb budget deficits as the economy begins to recover from the pandemic.

UAE Central Bank Starts Gradual Curb of Stimulus Measures

The UAE Central Bank has started a gradual withdrawal of its Targeted Economic Support Scheme (TESS) launched in response to the pandemic as the economy shows signs of gradual recovery. However, the Central Bank will not change the temporarily reduced reserve requirements for banks for now. Furthermore, it expects the UAE economy to grow at 2.1 per cent in 2021 and 4.2 per cent in 2022.

Saudi Arabia Announces Human Capability Development Program

The Saudi Crown Prince launched the Human Capability Development Program (HCDP) in line with its Vision 2030. The program aims to boost the citizen's capabilities, locally and globally and includes 89 initiatives aimed at achieving 16 strategic objectives of Saudi Vision 2030.

Saudi PIF Plans to Issue Green Debt 

Saudi Arabia's Public Investment Fund (PIF) plans to announce its first green sukuk issuance, as it looks to increase the role that Environmental, Social and Governance principles (ESG) play in its investments. Furthermore, the Kingdom aims to deploy 50 per cent of its investments in renewable and sustainable power sources.

Outlook

GCC economies are on resilient recovery path as vaccination proceeds and the economy fully reopens. Gulf states are seeing a revival of trade, travel and tourism. Global recovery is shaping up to be even stronger than anticipated at the start of the year, with oil demand beating expectations, causing a surge in prices. Higher than fiscally breakeven oil prices would help to restore the fiscal and external positions and boost confidence in the economy of the region providing support for diversification and spending plans. This, coupled with large capital reserves, will help maintain public spending.

The IMF expects growth in the region to resume at 2.7 per cent in 2021, and further improve to 3.8 per cent in 2022.

The Investment Adviser believes that investing in the region is not just all about oil. It is about diversification, infrastructure spending, expansion of the non-oil and gas sector, privatization and economic, social and capital market reforms. The ongoing socio-economic/structural reforms in Saudi Arabia continues to open up opportunities for long term investors. The Shareek Program which is a part of the Kingdom's SAR27 trillion investment plan, is expected to boost economic growth and strengthen the private sector. In the near term, events such as FIFA World Cup 2022 and large-scale infrastructure projects such as NEOM City, the Red Sea project and the North Field Gas expansion project, could propel economic prosperity in the region. Over 1.7 million people could visit Qatar during the tournament for what could be the world's first post-Covid mass audience sporting event. Additionally, the pandemic has opened opportunities to many sectors looking for consolidation to form stronger entities in order to gain market share and improve operational efficiency.

Overall, these opportunities are compelling when compared to investment opportunities elsewhere because of the recent strong rally in the global equity markets. Additionally, one should not ignore the dollar-linked superior dividend yield in the region. GCC markets typically outperform global/EM during risk-off periods, after the initial sharp recovery. This flows from their defensive qualities, which include higher local participation, US$-pegged currencies, low betas versus EM and low correlation.