10 July 2024

Legal Entity Identifier: 2138009DIENFWKC3PW84                                                                          

Gulf Investment Fund plc (GIF) report: 3 months to 30^th June 2024

§ Net asset value (NAV) down 3.6 per cent (GIF's benchmark, S&P GCC Index down 3.9 percent)

§ GCC's 2024 economic outlook good with oil sector recovery, government spending and ongoing reforms amid global challenges.

Performance

GIF NAV was down 3.6 percent for the quarter, although this outperformed the benchmark S&P GCC Index which was down 3.9 per cent.

Positive performance came from Qatar Navigation (up 8.9 percent), The Mediterranean and Gulf Insurance Reinsurance Group (up 10.7 per cent), Qatar National Bank (up 3.0 per cent) and Qatar Gas Transport (up 16.9 per cent). Negative performers were Saudi National Bank (down 9.8 per cent and Commercial Bank of Qatar (down 10.9 per cent).

On 30^th June 2024, the GIF share price was trading at an 8.0 per cent discount to NAV.

Portfolio changes

GIF increased exposure to the Materials and Communication Services sector as valuations look undemanding with an attractive growth profile.

Weighting of the fund in Materials increased to 16.6 per cent of NAV in 2Q 2024 from 11.1 per cent, with new holdings in the Saudi cement sector. Saudi Cement, Yamama Cement, Southern Cement, and Yanbu Cement are well-positioned for increase in demand given their underutilized capacity potential.

The fund added a new holding in Communication services taking its weight to 4.6 per cent of NAV, mainly from the addition of Mobile Telecommunication Company, Kuwait. It is among the largest mobile operators in the wider region, with operations in 15 African countries and 7 in the Middle East. GIF's exposure to industrials and energy rose from 23.0 per cent to 25.6 per cent and from 0.0 per cent to 1.0 per cent, respectively.

The fund's weighting in the Consumer and Real Estate sectors decreased from 12.0 per cent to 5.1 per cent and from 5.4 per cent to 2.6 per cent, respectively. The fund divested entirely from the health care sector (weighting of 2.2 per cent on 31 March 2024) in pursuit of more favorable investment opportunities elsewhere as we believe there are other attractive.

In country terms and relative to the benchmark, GIF remains overweight in Qatar (23.8 per cent vs. benchmark weight of 9.4 per cent) and Oman (2.1 per cent vs 1.0 per cent). The fund also has an overweight to Kuwait (10.4 per cent vs 9.6 per cent) and is further underweight UAE (4.4 per cent, down from 8.4 per cent at end of March, vs benchmark weight of 17.5 per cent) as we reduced our UAE banking exposure. GIF's weighting in Saudi Arabia, GCC's biggest market, is 59.2 per cent vs benchmark weight of 61.8 per cent.

Qatar remains an overweight as its macroeconomic resilience and Qatari stocks' defensive characteristics make the country attractive.

GIF ended the quarter with 34 holdings: 21 in Saudi Arabia, 6 in Qatar, 3 in the UAE, 3 in Kuwait and 1 in Oman.

Outlook

The GCC region has a positive economic outlook, with real GDP growth projected to rebound to 2.4 per cent in 2024 and rise to 4.9 per cent in 2025. This forecast is driven by substantial GDP increases in the UAE and Saudi Arabia, supported by expected increase in oil production in the latter half of 2024 and a global economic recovery. GCC growth is not solely dependent on oil since non-oil sectors are expected to sustain robust growth in the medium term. GCC infrastructure project awards for H1 2024 now stand at $104.6bn.

The IMF expects UAE and Saudi Arabia to enjoy real Non-Oil GDP growth of 4.1 per cent and 3.9 per cent, respectively, in 2024; and 4.2 per cent and 5.3 per cent in 2025.

GCC inflation continues to trend downwards, with the IMF forecasting consumer price inflation to fall from 2.2 per cent in 2024 to 2.1 per cent in 2025.

GCC visitor numbers continue to rise. In Q1 2024, Qatar saw a 40 percent increase in visitors over the last year, reaching 1.6 million. Saudi Arabia's inbound visitor spending grew by 22.9 per cent to over $12 billion during the first quarter of the year.

The GCC continues to look attractive on the back of increasing benefits of the socio-economic reforms being rolled out in the region and the large infrastructure project awards. This year has also seen the Central Banks of the Eurozone, Canada, and Switzerland, among others, instigate rate cuts which leads to increased expectation that the US Fed will follow suit soon.