Further Reasons to Consider the Middle East
Although the region has recently reached new highs, I think it still remains relatively attractive from a valuation perspective. WTEMME had a dividend yield of over 5%, surpassing the S&P 500 and MSCI EM indexes by over 3.1% and 2.3%, respectively. From a price-to-earnings perspective, WTEMME traded at 11.5x expected earnings, a little above MSCI EM at 9.5x and below the S&P 500 Index at 15.6x.2
• Valuations Remain Attractive after Strong Performance – The weighted average performance of stocks within WTEMME domiciled in Qatar and the UAE were up over 29% and 99%, respectively. 3 Yet stocks within Qatar have a dividend yield of 4.36% and an estimated price-to-earnings ratio of 12.2x, while UAE stocks had a dividend yield of 2.8% and an estimated price-to-earnings ratio of 12.9x.4
• Dividend Growth Supports Valuations – Firms in the region have recently announced their proposed dividends for the 2013 calendar year, and some of the top weights in WTEMME had signaled for double-digit growth5:
o Qatar National Bank – 16.7% increase
o Industries Qatar – 29.4% increase
o First Gulf Bank – 20.0% increase
Potential Diversification Benefits
Exposure to these Middle East countries represents a different type of emerging market allocation. This can be illustrated through WTEMME’s historically low correlation with MSCI EM and S&P 500 Index.
• 3-Year Monthly Correlation6:
o MSCI EM vs. S&P 500 – 0.77
o WTEMME vs. S&P 500 – 0.56
o WTEMME vs. MSCI EM – 0.45
It is important to remember that regional returns can vary significantly year over year, and it is impossible to time the best-performing region. As a result, we think it is important to remain diversified across the different emerging or frontier countries and not focus just on the traditional countries. The WisdomTree Middle East Dividend Index tracks dividend-paying stocks in countries that tend to be under-weighted in many investors’ portfolios.
1Sources: WisdomTree, Bloomberg (12/31/2013–02/14/2014).
2Sources: WisdomTree, Bloomberg (02/14/2014).
3Sources: WisdomTree, Bloomberg (12/31/12–12/31/13).
4Sources: WisdomTree, Bloomberg (02/14/2014).
5WTEMME Index Weight (02/14/14): Qatar National Bank (7.21%), Industries Qatar (7.13%) and First Gulf Bank (6.69%).
6Sources: WisdomTree, Zephyr StyleADVISOR (12/31/10–12/31/13).
Important Risks Related to this Article
There are risks associated with investing, including possible loss of principal. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Investments in the Middle East increase the impact of events and developments associated with the region, which can adversely affect performance. Investments in emerging, offshore or frontier markets such as the Middle East are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation and intervention or political developments.
Investments focused in Qatar or the United Arab Emirates are increasing the impact of events and developments associated with the region, which can adversely affect performance. Diversification does not eliminate the risk of experiencing investment losses.