Quarterly Report Q4 2017

RNS Number : 8333C

Gulf Investment Fund PLC

25 January 2018

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

Q4 2017 Investment Report

Gulf Investment Fund plc (LSE: GIF), today issues its Q4 2017 Investment Report for the period 1 October 2017 to 31 December 2017, a pdf copy of which can be obtained from GIF's website at: www.qatarinvestmentfund.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 - Q4 2017

3 months ended 31 December 2017

Change of name to Gulf Investment Fund plc

On 12 December 2017 Qatar Investment Fund plc ("QIF" or "the Fund") changed its name to Gulf Investment Fund plc (GIF), reflecting the change from a Qatar-focused investment strategy to a wider Gulf Cooperation Council ("GCC") strategy.

Quarterly Highlights

Qatar

Ø In the quarter GIF's net asset value per share rose 2.6 per cent vs. a rise of 2.5 per cent by Qatar Exchange Index

Ø Qatar's GDP rose 5.5 per cent in Q3 2017

Ø Qatar fiscal plans see continued spending despite ongoing travel ban

GCC

Ø Oil price rose 17 per cent

Ø Saudi Arabia announced its largest ever budget of US$261 billion

Ø Abu Dhabi (UAE) and Dubai budgeted a rise in spending

Ø Kuwait upgraded to FTSE Emerging Market status

GIF Performance

Please refer to the IMS on the Company's website www.qatarinvestmentfund.com/publications/quarterly-reports/ for a chart: the NAV per share compared to the GIF share price.

On 31 December 2017, the GIF share price was trading at a 16.9 per cent discount to net asset value (NAV) per share.

Change of investment policy

The new investment policy removed the 15 per cent NAV ceiling on the Fund investing in GCC countries outside Qatar. The Investment Adviser now has a wider investment universe in which to identify attractive opportunities in the GCC region.

The reference index for the Fund now becomes the S&P GCC Composite Index (previously: QE Index), whilst not being a formal benchmark for the Fund.

The Investment Adviser's task is to identify emerging investment opportunities and positive fundamental factors that have not yet been priced in by the market. The adviser follows a top-down approach monitoring macro trends and identifying promising sectors and companies in GCC countries.

The new investment policy commenced on 7 December 2017. As at 31st December GIF's allocation to Qatar was 85 per cent. We expect to retain a significant overweight position in Qatar over the short term while Qatar is trading at an attractive valuation compared to other GCC markets. We are monitoring developments in other GCC countries and will be increasing exposure to other GCC countries as we identify attractive investment opportunities.

Since the adoption of the new investment policy GIF has outperformed the S&P GCC Composite Index by 5.3 per cent as Qatar outperformed the GCC.

Regional Market Overview

	31-Dec-2016	30-Sep-2017	31-Dec-2017	4Q 2017	FY17
Qatar (QE)	10436.8	8312.4	8523.4	2.5%	-18.3%
Saudi Arabia (TASI)	7210.4	7283.0	7226.3	-0.8%	0.2%
Dubai (DFMGI)	3530.9	3564.0	3370.1	-5.4%	-4.6%
Abu Dhabi (ADI)	4546.4	4397.4	4398.4	0.0%	-3.3%
Kuwait (KWSE)	5748.1	6679.7	6408.0	-4.1%	11.5%
Oman (MSI)	5782.7	5137.4	5099.3	-0.7%	-11.8%
Bahrain (BAX)	1220.5	1283.5	1331.7	3.8%	9.1%
S&P GCC Composite	99.4	99.9	98.9	-1.0%	-0.5%
Brent	56.1	57.4	66.9	16.5%	19.1%

Source: Bloomberg, S&P Website

The Dubai market dropped 5.4 per cent following foreign investment outflows, whilst the Abu Dhabi market was flat. Qatar gained 2.5 per cent as the government budgeted a marginal rise in spending for 2018, signaling strong economic performance despite the ongoing blockade. Kuwait was down 4.1 per cent. Bahrain ended the quarter up 3.8 per cent.

Crude prices closed 17 per cent higher in the quarter following the extension to the OPEC agreement to December 2018.

Portfolio Structure

Top 10 Holdings

Company Name	Sector	% share of NAV
Qatar National Bank	Banks & Financial Services	17.4%
Industries Qatar	Industrials	9.8%
Masraf Al Rayan	Banks & Financial Services	9.6%
Qatar Electricity & Water Co	Industrials	9.4%
Ooredoo	Telecoms	9.1%
Qatar Gas Transport	Transportation	6.7%
Barwa Real Estate	Real Estate	6.2%
Commercial Bank of Qatar	Banks & Financial Services	6.0%
Gulf International Services	Industrials	4.3%
Qatar National Cement Co	Industrials	3.6%

Source: QIC

GIF's top 10 holdings were unchanged from 3Q 2017. The holdings in Qatar Gas Transport and Ooredoo were increased while holdings in Qatar National Bank and Masraf Al Rayan were reduced.

Country Allocation

As at 31 December 2017, GIF had 20 holdings: 13 in Qatar, 5 in the UAE and 2 in Oman (Q3 2017: 28 holdings: 16 in Qatar, 9 in the UAE and 3 in Oman). The Investment Adviser reduced exposure to UAE to 8.0 per cent of NAV from 10.4 per cent. The cash weighting was 5.1 per cent (Q3 2017: 2.4 per cent).

Please refer to the IMS on the Company's website www.qatarinvestmentfund.com/publications/quarterly-reports/ for a Chart: Country Allocation (% of NAV).

Sector Allocation

Please refer to the IMS on the Company's website www.qatarinvestmentfund.com/publications/quarterly-reports/ for a Chart: Sector allocation (% of NAV).

The Qatari banking sector (including financial services) is the Fund's largest sector holding at 40.9 per cent of NAV. Qatari industrials is second at 27.2 per cent of NAV (Q3 2017: 25.5 per cent).

Qatar National Bank (QNB) remains GIF's largest holding at 17.4 per cent of NAV. Other holdings include Abu Dhabi Commercial Bank (2.2 per cent of NAV), Dubai Islamic Bank (2.7 per cent of NAV) and Emaar Properties based in UAE (2.0 per cent of NAV).

Looking Ahead - GCC

The Investment Adviser believes that GCC markets are an attractive long-term investment opportunity. Governments in the GCC are expanding their non-oil sectors with infrastructure development and investment in the social sectors.

The Investment Adviser has identified the following key themes for investment in GCC.

· Banks: The GCC banking sector tends to enjoy strong asset quality and capitalisation, along with government support and growth from infrastructure investments.

· Real Estate & Housing Finance: Rising population and an undersupplied residential market in most of the GCC countries is expected to create robust demand for residential construction and housing finance.

· Healthcare & Education: Shortage of medical services and education will continue to create a need for government spending on social development and these sectors have seen high allocations in recent government budgets.

· Tourism: Governments in the GCC are promoting their countries as tourist destinations. Tourism should drive demand for hospitality, travel and infrastructure sectors and create employment.

· Retail: Rising population, high spending power and increasing tourism should create opportunities for retail businesses.

· Industrials: The petrochemical sector contributed c.30 per cent to GDP in 2014 making it a key non-oil GCC export sector. The world petrochemical market is poised to grow at 8.8 per cent annually until 2022.

· Localisation and Privatisation: GCC countries are encouraging the transfer of knowledge and technology, and creating opportunities in manufacturing, maintenance, repair, research and development. Localization of business activity will be achieved through direct investments and strategic partnerships with leading sector companies. Privatization can improve productivity and the quality of services in education, healthcare, transportation and utilities.

Several GCC markets have been upgraded to emerging market from frontier market status in recent months. Across the region governments are seeking to encourage foreign investment. The privatisation of public assets, easing of foreign ownership restrictions and more transparency should accelerate the upgrade of further GCC markets over the next years.

GCC nations are diversifying away from oil and gas. The US$100 billion Aramco IPO forms the centerpiece of the Saudi non-oil diversification reforms alongside the US$500 billion plan to develop the NEOM business and industrial zone linking with Jordan and Egypt. The UAE plans to invest US$163 billion on renewable energy projects. Qatar is expected to spend over US$200 billion (from 2015 to 2021) on projects ahead of the FIFA World Cup 2022. As part of the Kuwait Development Plan (KDP), the nation plans to spend around US$160 billion over 500 projects, including infrastructure, utilities and housing investments. Oman plans to invest about US$35 billion on tourism related projects, which is expected to double visitor numbers by 2040.

GCC countries, historically used to large fiscal surpluses, tightened their belts in recent years following oil price falls. As a result, non-oil growth started to be impacted. Recent higher oil prices have provided more budget flexibility and as a result non-oil growth is expected to have increased to 2.6 per cent in 2017 this year, from 1.8 per cent in 2016.

Please refer to the IMS on the Company's website www.qatarinvestmentfund.com/publications/quarterly-reports/ for a Chart: Overall Budgeted Expenditure Levels

Most gulf economies continue to focus on education and healthcare. Saudi Arabia has allocated 40 per cent of its budget to these sectors, a trend seen across the GCC.

Please refer to the IMS on the Company's website www.qatarinvestmentfund.com/publications/quarterly-reports/ for a Chart: GCC Spending on Key Sectors

The International Monetary Fund (IMF) expects the GCC to have a current account surplus in 2017 as oil prices recover. Saudi Arabia's shortfall reached 9 per cent of GDP in 2015, but is expected to record a surplus of 0.6 per cent in 2017.

Please refer to the IMS on the Company's website www.qatarinvestmentfund.com/publications/quarterly-reports/ for a Chart: GCC Fiscal and Current Account Balance as a per cent of GDP

Economic Outlook

GDP growth in the GCC is estimated at 0.5 per cent in 2017. Non-oil growth is expected to increase to 2.6 per cent in 2017 as government budgets improve. Populations continue to grow, fueling personal consumption which should benefit domestic consumer and services sector companies.

The IMF expects GDP growth to increase to 2.2 per cent 2018 with non-oil growth easing to 2.4 per cent. Over the medium-term, non-oil growth is projected at 3.4 per cent. The introduction of VAT in the UAE and Saudi Arabia should generate additional government revenues of 1.5-1.6 per cent of their respective GDPs.

Some risks remain. The recent meeting between GCC officials has made some progress towards a resolution of the seven-month Saudi-led blockade of Qatar. The Investment Adviser believes that the dispute will be resolved eventually but the timing is uncertain. Increased tensions between Saudi Arabia and Iran and the anti-corruption crackdown in Saudi Arabia could lead to short term volatility in capital markets.

Valuations

Market	Market Cap.	PE (x)		PB (x)		Dividend Yield (%)
	US$ billion	2018E	2019E	2018E	2019E	2018E	2019E
Qatar	98.8	10.68	11.34	1.32	1.17	4.69	4.68
Saudi Arabia	450.2	11.63	11.53	1.43	1.43	4.07	4.07
Dubai	80.7	7.63	7.39	1.06	0.93	4.76	4.48
Abu Dhabi	116.9	7.62	9.66	1.28	1.20	5.54	5.46
Oman	14.3	9.48	9.48	0.95	0.95	NA	NA
MSCI EM	10640.1	11.68	11.14	1.51	1.16	2.88	2.65