Mid-Year Emerging Markets Update | Mark Mobius:
"As I’ve often said, investing in emerging markets requires patience, long-term perspective, and selective stock-picking. I think many investors focus too much on the short-term. As long-term investors, we view short-term bouts of volatility as an opportune time to find potential bargains for our portfolios, and we certainly experienced that in the first half of the year. Sentiment in emerging markets seemed to be at a particularly low point at the very start of the year, coming off a weak 2013. As the US Federal Reserve (Fed) started tapering its quantitative easing program, fears seem to have surfaced that liquidity would dry up, and concerns about potentially slower growth in China this year gave some investors pause. Headlines of conflict and violence in countries including Ukraine, Turkey, Thailand and Nigeria also affected overall investor sentiment in the first half of the year, along with doubts about the readiness of Russia to host the Winter Olympics and Brazil to host the FIFA World Cup. On the brighter side, India’s market saw a post-election resurgence of hope, China’s economy did not experience a hard landing and the upgrade of Qatar and United Arab Emirates to emerging markets status from frontier appeared to fuel investor interest. We believe emerging markets overall are now in what could be classified as a “recovery phase” after 2013’s underperformance, barring no further unexpected shocks.
We believe it’s important to look at the big picture as an investor in emerging markets. During the last 10 years, there have been only three years when emerging markets underperformed developed markets, 2013 being one of them.1 In the first half of 2014, emerging markets have generally outperformed developed markets,2 and I would say that we’re in a sweet spot in terms of emerging markets’ recovery. And, we think a number of frontier markets, the even lesser-developed subset of emerging markets, look particularly attractive right now."
'via Blog this'
Most investment bankers in Dubai’s financial center will tell you their pipeline – the transactions they are working on – is robust and that the Middle East’s post-crisis deal climate is improving. However, data for the first six months of 2014 suggest the regional dealmaker’s optimism is still premature.
The value of Middle Eastern mergers and acquisitions sunk to its lowest level in almost a decade, Dealogic data show. Transactions involving a Mideast buyer or seller fell to $23.6 billion in the first six months of this year to date, down 13% compared to the same period in 2013. Europe, by contrast, saw deal activity rebound in the same period.
- Dealogic
As always, the usual caveats apply: in a region were volumes are relatively thin a few big deals have the ability to change the picture while some transactions may have been carried out privately and are therefore not included. Still, deal activity appears tepid and there are a handful of reasons behind the Middle East’s weak M&A performance.
Some advisors will point to the region’s fragile political climate which is deterring investors from making investment decisions and pushing ahead with plans to acquire or divest a business.
“Without a doubt, the fact that most of the region is at war does not help,” said Ziad Awad, a former Merrill Lynch managing director and chief executive of Awad Advisory, an independent Dubai-based M&A firm. The pickup in violence in Iraq, the Syria conflict and the change of government in Egypt all contributed to the negative sentiment even if the economies of the oil-exporters in the Persian Gulf remain unscathed.
But there are other factors in play. Sovereign wealth funds, notably the Qatar Investment Authority, have also been relatively quiet in the past year.
“Another factor is reduced outbound SWF acquisitions, which is itself linked back to their increased focus on investing at home,” Mr. Awad said.
The dearth of M&A transactions has been plaguing investment banks in the Middle East since the global crisis hit the region in 2009. Banks that came to financial centers such as Dubai and Doha were forced to trim down their staff with many seasoned bankers returning to London or moving on to Asia while others set up their own boutiques to advise on smaller transactions.
Most international banks still retain a limited M&A presence in the region but more complex and large cross-border transactions are inevitably overseen by their colleagues in London or other large financial hubs.
“Offering M&A services in the region helps raise a bank’s profile but is not necessarily a profitable line of business,” said Ashok Aram, chief executive for Deutsche Bank Middle East and North Africa. “Capital markets and risk management services are more crucial for your regional P&L,” he said.
Two of the largest transactions so far this year involved Qatar’s previous prime minister and former head of its acquisitive sovereign wealth fund, Sheikh Hamad bin Jassim, who invested in Deutsche Bank, while another investment vehicle of his acquired Heritage Oil.
Deutsche Bank ranked number one on the Dealogic league table for Mideast M&A in terms of deal value followed by J.P.Morgan and Goldman Sachs.