Even the expected rate rise by the US Federal Reserve may not have a big impact and could even benefit some nations as many of the region’s currencies are pegged to the dollar, he said.
Marcel is part of Amundi‘s emerging markets team and lead manager of the Amundi Equity MENA Fund, a Luxembourg-domiciled UCITS fund with around $132.54m (£85.9m, €118m) under management at 31 July, 2015.
The fund was down 7.5% for the year to 11 September, and down around 22.6% over the past year but is up 34% over the past three years, according to FE Analytics.
Marcel said the key to investing in the MENA region is the outlook for oil prices and, though these have fallen sharply this year, some stabilization was likely in the coming months. He said this could be either a result of more discipline from oil producing countries in terms of production or from a pick-up in demand as the global economic recovery gathers pace.
In Marcel’s view an oil price of around $65 a barrel would be still fairly positive for the MENA area.
Surpluses key
“What is important for the region is that when the oil price was strong, all the major oil producing countries managed to gather big surpluses.”
In Saudi Arabia, the region’s biggest oil producer, there is no real government debt, and the country still has huge foreign exchange reserves. “So there will be budget deficits this year but they can issue debt as they are starting at a very low level,” he said.
In the United Arab Emirates (UAE), the IMF recently reported that lower oil prices were likely to erode long-standing fiscal and external surpluses and even said a hike in the US interest rate could lead to a tightening of financial conditions.
However, it indicated the authorities were well placed to manage any necessary easing of monetary conditions and manage the gradual fiscal tightening needed to counter the impact.
Deficits loom
“This year with the low oil prices, we see the first fiscal deficit (in the UAE) since 2009,” said Zeine Zeidane, advisor of the IMF Middle East and Central Asia department. His estimated a budget deficit would be 2.9% of GDP based on an oil price at around $60 -$62 a barrel.
Marcel said the UAE was gradually moving to implement the IMF’s recommendations to cut the subsidies in the domestic oil market and was also looking at some form of VAT to reduce the budget deficit.
For the rest of the region, Marcel said the outlook for non-oil producers like Egypt, Morocco, Lebanon and Jordan was weaker.
“In our portfolio we keep an underweight position in these countries,” he said. However, Marcel noted Egypt was likely to be an exception thanks to expected support from the Gulf Cooperation Council (GCC), notably Saudi Arabia.
“At the moment we are keeping a positive view on the region,” he said.
“There is no currency risk and there’s the prospect of Saudi joining the MSCI EM index after it opened its market to foreign investors. which will give the local market some institutional investment flows,”
“To be really negative on the region we would need to see the oil price significantly lower and for a long period of time. This is not our base case scenario,” he said.
