HSBC Asset Management’s Middle East and North Africa (Mena) team have increased their exposure to the United Arab Emirate (UAE)’s unloved real estate stocks because of increasing demand for low-cost housing.
Portfolio manager Andrew Brudenell, who works alongside Andrea Nannini on the seven-month-old Mena Equity vehicle, says commercial property development in the area has been hit by the Dubai bubble. However, many companies are also heavily involved in basic housing to accommodate the region’s growing population, which has provided a counterpoint to the commercial property downturn.
The team has built up a combined position of more than 4% in UAE real estate firm Aldar Properties and Moroccan developer Emaar Properties. Brudenell says both firms have large social housing capabilities which extend to utilities as well as construction.
“We have been looking closely at real estate, which has been a disliked sector for a while because people have linked it to Dubai and overspending, while in Morocco the high-end villas and hotel developments have obviously been hit,” Brudenell says.
“However, when you look at it more closely you realise while they are involved in some of those developments, a large chunk of their business is actually pretty basic stuff that is not seeing a fall away in demand or dramatic price cuts. The baby has been thrown out with the bathwater, which has created some good opportunities.”
Brudenell favours Egypt and Qatar in terms of growth opportunities thanks to their growing populations, natural resources and heavy infrastructure investment.
The countries represent 18.41% and 13.87% of the fund respectively – the highest weightings outside of the more developed Kuwait, which makes up 32.63% of the $6.15m
(£4m) portfolio.
“Egypt is an attractive option with a growing, strong economy, which gained in excess of 4% growth in 2009, and should be over 5% in 2010,” Brudenell says.
Industrial demand is supported by the large population, which will continue to demand further infrastructure and business resources. Many of the listed companies on offer provide interesting investment options with strong management teams.
Qatar is a second country we favour, due to its large natural gas resource. The country is heavily investing in infrastructure to enable gas to be extracted and converted into a useable format, which can then be delivered more easily to the US and Europe. Production is set to double, which in turn should fuel substantial economic growth for the country.”
