DUBAI, United Arab Emirates–(BUSINESS WIRE)
Approaching the last quarter of 2016 – we are faced with two general market conditions in our two geographical focus areas – the Middle East North Africa (MENA) markets and the developed markets.
The MENA markets fell significantly in recent months as result of factors ranging from political uncertainties or in the case of the Gulf Cooperation Council countries the severe oil price crash.
These macro issues started to affect the wider economy and the consumer as the GCC countries switched from having budget surpluses to budget deficits and from overspending to budget cuts severely slowing economic activity and drying up liquidity in the markets.
Almost a perfect storm of pessimism appeared overwhelming individuals corporates and financial institutions.
The negative spiral continued as fear drove people to take sometimes emotional decisions to sell their most liquid investments – stocks – and convert their assets to the psychological safety of cash ,meanwhile margin calls pushed liquidations of portfolios causing further lowering of share prices as exemplified by the regional indexes losing close to 39% of their value since the fourth quarter of 2014.
More specifically, Saudi Arabia stocks exhibited a more drastic decline as the Tadwul index lost more than half of its value from the fourth quarter of 2014. Although further declines could occur and contrary to the dominating negative sentiment, we believe that current prices provide good risk adjusted low valuations enabling us to purchase parts of leading businesses in Saudi and the region that will survive the current downturn and potentially thrive thereafter due to the fact that these companies possess superior financial standings, solid market positions, as well as good management.
Furthermore, an added critical reason that is giving us comfort to invest in these uncertain times selectively in the MENA region stems from our belief that oil will still be an important commodity and source of fuel for decades to come and the exaggerated story of the end of oil or oversupply of oil is not to be believed fully especially in the short to medium term.
On the contrary, in the developed markets the situation is quite different. As a result of the massive programs to infuse liquidity into the system, historical all time highs prices of bonds and equities were reached creating unhealthy environments exemplified by assets in the trillions of dollars paying owners a negative yield. This situation has lead us unfortunately to find no value in some of the largest markets such as the US and Germany, currently. However, other parts of the developed markets are experiencing turbulence and volatility from the expected continued slowdown of China and Brexit complications – creating certain value opportunities.
At Saray Capital we believe that emotions dominate in the short term however facts rule over the long term. Coming from a region that has the oldest recorded commercial transactions in history dating more than five thousand years ago, we believe that economic and political cycles are a natural phenomenon and to be expected and to be prepared for by always being disciplined, diversified across geographies and asset classes, and under-leveraged.
Moreover, the founders of Saray Capital due to their experience as well as merchant families heritage practice holding concentrated number of well researched investments for the long term. It is a private equity and merchant families approach to investing in the public markets.
We believe that in order to safeguard and grow capital for our investors it is exactly at such volatile times that we step in to purchase highly selected, high barrier to entry, financially healthy, high quality companies sometimes offered at historical low valuations in the regions that we currently find value in parts of developed Asia, the UK, Europe, and in the MENA markets mainly the GCC and Turkey.
Finally, we at Saray believe in and practice true and full alignment by investing our own capital alongside our investors. At Saray Capital, we are compensated purely on a success fee basis and hence only benefit when our investors benefit first.