Middle East Wealth Funds Plan More European Bargain Hunting, Says Invesco

Almost half of Middle Eastern sovereign wealth funds plan to buy more shares in mainly European companies battered by the market turmoil brought on by the coronavirus pandemic, according to Invesco Ltd.

Over the next 12 months, about 43% of sovereign funds in the region will buy equities with lower valuations, while 29% will cut those holdings, the asset manager said in a report published on Monday. Most will look in Europe for bargains, with 38% increasing their exposure to emerging Europe and 38% to developed Europe.

“The market turmoil in March and April saw asset prices fall considerably, especially as some investors sold securities to ensure liquidity,” Zainab Kufaishi, head of Middle East and Africa at Invesco, said in a statement. “This presented opportunities to gain exposure to blue chip companies at very good prices.”

Regional funds are more prepared to hunt for bargains than they were during the 2009 financial crisis after building up large cash reserves in recent years, Invesco said. About 57% of funds plan to invest more in fixed income, 43% in infrastructure and 50% in private equity.

Sovereign funds across the world have been bulking up on stocks that got hammered during the meltdown in global markets and oil-price collapse.

In the Middle East, Saudi Arabia’s Public Investment Fund has been the most active, taking billions of dollars’ worth of stakes in some of the world’s biggest companies including BP Plc, Boeing Co., Citigroup Inc. and Facebook Inc.

Other highlights from the Invesco report:

• Many Middle East funds have well-developed internal teams to manage these strategies.
• The virus accelerated the existing trend toward infrastructure projects by creating potential distressed opportunities.
• Central banks and a small but significant group of global sovereigns increased their allocations to gold.
• Middle East investors highlighted concerns around climate-based risks such as changes in oil demand, rising temperatures and water supply.