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The Fund Manager's Market Commentary for April 24, 2012

The Emirates Gateway Fund rose 1.75% in April versus a drop of -0.27% for the S&P UAE Composite Index. That brings the YTD gain for the Emirates gateway Fund to nearly +21%. The bourses in the Emirates have been in range bound mode ahead of earnings season which thus far looks promising, and the DFM up 20%+ remains one of the best performing markets in the world.

Global markets have put in a choppy month as we expected in our recent note, with a mixed bag of macro data and the ever present concerns on European debt reigning in the previous month’s unbridled exuberance. All is certainly not rosy yet as imbalances in the global economy remain and politics and policy measures remain key market drivers. Although we remain watchful of game changing negative developments, thus far our base case of gradually improving global growth and disaster aversion in Europe near term stands firm amidst slowly improving US economic indicators, expectations of EM central banks easing as well as a thus far solid first quarter earnings season. However, as summer approaches and macro/policy indicators become more uneven, we expect markets to be more volatile.

As we expected, earnings thus far in the UAE have been positively upbeat, and as the year of refinancing and debt maturities progresses, investor sentiment has remained buoyant. Macro-economic indicators remain on the up, with recently robust retail sales, hotel occupancy, passenger numbers as well as real estate sales and prices pointing to improving earnings in the year to come. Although banking sector data has not been as robust, showing subdued lending in marked contrast to its neighbours, asset quality concerns continue to abate gradually. Further, the recently successful IPO of NMC health is a positive indicator of UAE companies returning to the equity capital markets after a multi-year drought. Given the substantial speculative/retail activity recently, we would like to note that the fund remains committed to its core conviction list of solid franchises with high quality earnings, a combination we remain confident will outperform over the medium to long term. Through the month we booked some gains in banking and transport, increased our weight to the resurgent real estate sector and made a new allocation to healthcare.