opportunities and challenges in investment management regional

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OPPORTUNITIES AND CHALLENGES IN
THE REGION
ASSET MANAGERS PRESPECTIVE
Ajay Kumar,CFA, FRM
Head of Asset Management
Qatar National Bank
OPPORTUNITIES AND CHALLENGES ARE
ENTWINED
Opportunities
Economic Drivers
• Most Dynamic Era For The Region
• Sustained high oil prices
• Growth,Government spending and Capex
• Diversity in Hydro carbon
• Liberalization and reforms
• Demographic profile
• Density of Wealth
• All Round Economic Growth
• Physical and Social Infrastructure, Utilities, real estate
• Downstream HC, Ancillary units, Logistics
• Banking, Media, Entertainment and Tourism
Opportunities
Capital Market
• Economy not fully represented
• Privatizations and Govt., Divestments
• Low penetration of Institutional funds
• Promising Emerging Market
•
•
•
•
•
Low Correlations with other markets
Opportunities for ALPHA
Volatility
Liquidity and Risk Capital
State Patronage
• Demand for non conventional funding
• High Risk Appetite
Challenges
Economic
• Oil prices
• Currency Pegs
• Low savings Rate
Challenges
Capital Market
•
•
•
•
•
•
•
•
•
•
Constricted Universe
Cross Holdings
Risks are Systemic
Limited Float
Investment Restrictions
Volatility
Market Asymmetry
Lack of Derivatives
Distorted Risk Premiums
Disclosures
Challenges
Behavioral
• Information Asymmetry
• Shortermism
• White Noise
– Sometimes your best investments are the ones you don't
make - DT
• Speculation, Herd Mentality
– A public opinion poll is no substitute for thought – WB
I'd be a bum on the street with a tin cup if
the markets were efficient.
Warren E. Buffett
THANK YOU
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ul07
0.00%
Au
g07
Se Oc
p- t07 07
18.00%
16.00%
25.00%
14.00%
12.00%
10.00%
8.00%
10.00%
6.00%
4.00%
2.00%
0.00%
Oct-06
Sep-06
Aug-06
Jul-06
Jun-06
May-06
Apr-06
Mar-06
Feb-06
Jan-06
Dec-05
Nov-05
Oct-05
Sep-05
Aug-05
Jul-05
Jun-05
May-05
Apr-05
Mar-05
Sep-07
Oct-07
Oct-07
Aug-07
Jul-07
Jun-07
May-07
Apr-07
Mar-07
Feb-07
Sep-07
Aug-07
Jul-07
Jun-07
May-07
Apr-07
Mar-07
Feb-07
Jan-07
35.00%
Dec-06
Annl Vol S&P 500
Jan-07
20.00%
Dec-06
40.00%
Nov-06
Annl Vol Qatar
Nov-06
Oct-06
Sep-06
Aug-06
Jul-06
Jun-06
May-06
Apr-06
Mar-06
Feb-06
Jan-06
Dec-05
Nov-05
Oct-05
Sep-05
Aug-05
Jul-05
Jun-05
5.00%
Apr-05
15.00%
May-05
20.00%
Mar-05
30.00%
Feb-05
0.00%
Jan-05
4.00%
Dec-04
8.00%
Jan-05
14.00%
Feb-05
20.00%
Dec-04
Oct-07
Sep-07
Aug-07
Jul-07
Jun-07
May-07
Apr-07
Mar-07
Feb-07
Jan-07
Dec-06
Nov-06
Oct-06
Sep-06
Aug-06
Jul-06
Jun-06
May-06
Apr-06
Mar-06
Feb-06
Jan-06
Dec-05
Nov-05
Oct-05
Sep-05
Aug-05
Jul-05
Jun-05
May-05
Apr-05
Mar-05
Feb-05
Jan-05
Dec-04
Regional Volatilities
Annl Vol Saudi
Annl Vol Kuw ait
70.00%
60.00%
18.00%
16.00%
50.00%
12.00%
40.00%
10.00%
30.00%
6.00%
20.00%
10.00%
2.00%
0.00%
Correlations Sectors
Correlations Between Sectors in GCC Markets
Banks & Industry
Kuwait
Oman
Qatar
Saudi
0.563
0.488
0.689
0.728
Banks & Services
0.541
0.511
0.683
0.633
Industries & Services
0.781
0.442
0.706
0.777
Information Asymmetry
16.0
20,000,000
22-Oct : Announcement
of stake in a UAE Bank
18,000,000
15.0
16,000,000
Increase in Prices and
volumes observed - Price
rallying by more than 20%
14,000,000
shares
10,000,000
13.0
of
12,000,000
No.
traded
14.0
8,000,000
12.0
6,000,000
4,000,000
11.0
2,000,000
10.0
12/9/07
0
18/9/07
24/9/07
30/9/07
4/10/07
10/10/07
21/10/07
25/10/07
31/10/07
6/11/07
12/11/07
18/11/07
5.5
200,000,000
29-Oct : Strategic
Stake in Real Estate
Bank
5
8-Nov :
Entering the
Gulf Real
Estate mkts
180,000,000
160,000,000
140,000,000
4.5
4
Price rallying
by more
than 45%
before the
announceme
nt
120,000,000
100,000,000
80,000,000
3.5
60,000,000
40,000,000
3
20,000,000
2.5
8/23/2007 8/30/2007 9/6/2007 9/13/2007 9/20/2007 9/27/2007 10/4/2007 10/15/200710/22/200710/29/2007 11/5/2007 11/12/200711/19/2007
Oil Price
80
Yearly Average Crude Oil Price OPEC Basket
@6 bln
output p.a
and $ 40
budget,
Surplus will
160 bln $ 07
70
60
67.02
61.08
50.64
50
Average Budget Price
40
36.05
30
24.36
23.12
20.29
20
15.53
16.86
18.68
CAGR - 24.27% since 2003
28.1
27.6
17.48
12.28
10
Long Term - CAGR - 11.29%
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Shortermism
Scaling Principle of Randomness
A
Period
1 year
1 Quarter
1 Month
1 Week
1 Day
1
4
12
52
365
B
Mean / n
C
n^.5
0.333
0.083
0.028
0.006
0.001
1.00
2.00
3.46
7.21
19.10
Our Favorite Holding Period is forever - WB
D
std/n^.5
0.357
0.178
0.103
0.049
0.019
E
0-B
E/ D
-0.333
-0.083
-0.028
-0.006
-0.001
-0.9350
-0.4675
-0.2699
-0.1297
-0.0489
Pr. Of + return
84.97%
68.08%
60.64%
55.17%
51.99%
Correlations
Correlations GCC Markets with Other major Indices
Country Index
Abu Dhabi
Dubai
Bahrain
Kuwait
Qatar
Saudi
Dubai
0.744
Bahrain
0.359
0.372
Kuwait
0.513
0.491
0.545
Qatar
0.481
0.435
0.320
0.302
Saudi
0.445
0.461
0.320
0.387
0.285
S&P 500
-0.137
-0.060
-0.032
-0.077
0.032
-0.216
FTSE 100
-0.059
0.045
0.013
-0.069
0.292
-0.082
BSE Sensex
-0.074
0.058
-0.035
-0.191
0.155
-0.024
GDP Growth
CAGR 17.6%
774.7
717.9
800.0
700.0
600.0
$ in Bln
500.0
Inflation
612.3
483.0
CAGR 6.3%
405.4
395.6
370.2
346.2
441.6
420.2
400.0
300.0
200.0
100.0
0.0
2003
2004
2005
Nominal GDP
2006
Real GDP
2007E
Govt. Expenditure
CAGR 15%
250.0
3.60
229.0
3.55
3.50
205.0
3.50
200.0
172.6
3.38
3.40
150.0
3.30
146.3
130.7
3.20
100.0
3.10
3.10
3.00
50.0
2.90
0.0
2.80
2003
2004
2005
2006
Years
Govt. Expenditure
Multiplier
2007E
Multiple
Govt. Exp. Bln $
3.30
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