Growing up responsibly
Another factor to be considered is the prospect of VAT being introduced, which Seif says is part of growing up, and keeping public spending in order.
“I live in in the UAE, and though there are features of taxation, it is not called tax. The water bills in Saudi have grown in many multiples recently, so they can’t afford to pay for people’s water anymore. Someone has got to pay for it, and you just do it. It is happening in an orderly and equitable fashion.
“This part of the world has all the ingredients to keep going, unless the politics go completely crazy. I feel the political situation is consolidating, it looks calmer than it was 12 months ago. The sectors are growing, and, in terms of debt to GDP, this is still the least indebted part of the world.”
Seif also points out the reserves among the GCC countries are in the order of a couple of trillion dollars, while equities are no more expensive than in the rest of the emerging markets. Also, there is very minimal currency risk, in dollar terms, except for in Egypt, Morocco or Jordan.
In relation to EFG Hermes’ Frontier Fund, the portfolio has an open remit. It allows for investment in all the countries in the MSCI frontier markets index, although it does have a very concentrated holding of between 15 to 20 stocks in the frontier markets fund.
He picks out Pakistan and Vietnam as two markets that he likes, and he also favours a number of Sri Lankan stocks.
“Vietnam offers value. It also offers a higher growth than many other emerging markets. There are new consumption habits in healthcare, in pharmaceuticals and in hospital management and sectors are benefiting from that.
“There is currency and political stability. It is a populous country, and it is growing and converging to where more mature emerging markets are now.”
The portfolio also has exposure to Kenya, some southern European countries such as Croatia, and a couple of stocks in Bangladesh. Saudi Arabia, Egypt, and the UAE are all represented, too.
In terms of the corporate earnings of the companies they pick, Seif expects the overall outlook for 2016 to be an improvement on 2015.
“If the oil price is, on average, better in 2016 than it was in 2015 – which could happen – then maybe the macro picture would look better and the market could be more buoyant than it was before.”