The litmus test for diversification must be based on the ability of countries to meet their bills even if oil prices remain low. No #GCC country passes that test without dipping into savings or borrowings. The GCC economies need stimulus through focused spending on transformative programs that can boost qualitative growth. Alas, regional SWFs continue to be fairly shy about engaging proactively in the domestic economy despite the clear opportunities.

1. Nomura Asset Management U.K. Limited Dubai branch October 21st , 2020
Tarek Fadlallah, CFA
Chief Executive Officer
Nomura Asset Management
Middle East
P.O. Box 506882
Dubai, UAE
Tel: +971 4 428 4587
www.nomura-asset.co.uk
October 21st, 2020
The Arabian Markets
Highlights:
• Governments and central banks
have stepped up to save the
world but the cost of bridging
the fiscal gap arising from the
lockdowns at $12 trillion.
• The pandemic has created all
sorts of unanticipated headaches
for GCC decision makers and
constrained their ability to deal
with pressing economic issues.
• The GCC might need around
$490 billion in deficit financing
over the next three years,
according to S&P Global Ratings.
• The litmus test for diversification
must be based on the ability of
countries to meet their bills
even if oil prices remain low.
• Equity valuations appear
detached from the underlying
business fundamentals and do
not account for the impact of
delays to key reforms or the
unresolved structural challenges.
Content:
The Everything Rally 2
GCC Market Review 3
All About Oil 4
Importing Capital 5
Tech Never Sleeps 6
Dubai Property 7
The Bottom Line 8
Market Commentary — a product of Sales and Marketing and not Investment Research or Advice
Nomura Asset Management U.K. Limited Dubai branch is regulated by the Dubai Financial Services Authority
The LitmusTest
DiversificationZero Diversification

2. Nomura Asset Management U.K. Limited Dubai branch October 21st , 2020
Page 2
The Everything Rally
Governments and central banks have saved the world from a deflationary implosion by effectively funding
the global economy through its most dormant period in living memory.
There is a lot of noise in the data and it’s difficult to extrapolate too much but with the pandemic lingering
the economic recovery has been truncated and flattened out well below its peak.
Nonetheless, fuelled by cheap money and plentiful liquidity, asset prices have snapped back sharply from
their March/April lows as investors scrambled to buy everything.
All the hype has been around the US
stock market but the S&P500 index is
up just 6% compared to the phenomenal
rally in non-traditional assets including
Bitcoin (+63%) and Lumber (+36%).
Safe havens assets that typically have an
inverse correlation with risk, such as
Gold (+25%), have perversely also done
well this year.
Weakness has been evident mainly in
economic-sensitive commodities — oil
has lost around a third of it value.
The IMF estimates the cost of bridging the fiscal gap arising from the worldwide lockdowns at $12 trillion,
causing global public debt to climb to an all time high that’s close to 100% of GDP.
Despite these immense fiscal efforts, furloughed workers are becoming permanently unemployed, business
disruptions are turning to total shut downs and temporary inconveniences have become a new way of life.
But hope lives in elevated stock valuations.
Over the past five years the US equity market
has retuned around 69% — Dividends have
contributed 10%, Earnings 20% and higher
Valuations 39%.
S&P500 companies are expected to report a
Q3 profit decline of between 15%-20% — the
largest decline since 2009.
Profits will snap back next year but recovery
to 2019 earnings levels for some companies
may take several quarters or even years.
Investors are hanging onto hopes of a US fiscal stimulus program that will cement the long-awaited handoff
from monetary to fiscal policy and a utopian paradigm where money stays cheap and business booms.
Given rising systemic leverage, the deteriorating quality of corporate credit, sky high equity valuations and
no firm end in sight to the health pandemic, however, it would be irresponsible to get complacent.
20
39
10
(10)
0
10
20
30
40
50
60
70
201508
201602
201608
201702
201708
201802
201808
201902
201908
202002
202008
(a) Earnings (b) Valuation (c) Dividend Total Return (a)+(b)+(c)
Source: Nomura Asset Management
(%) US Equity Market
0%
6%
25%
36%
63%
-30%
-60%
-30%
0%
30%
60%
90%
120%
150%
01/2020 03/2020 05/2020 07/2020 09/2020
The Everything Rally
S&P500 Gold Lumber Bitcoin Brent Oil
Source: Bloomberg

3. Nomura Asset Management U.K. Limited Dubai branch October 21st , 2020
Page 3
GCC Market Review & Valuations
The performance dispersion among the GCC markets this year is partly explained by the relative impact of
the pandemic, with Dubai hit hardest by a collapse in the aviation, real estate and hospitality sectors while
Saudi Arabia was relatively better insulated.
Equity valuations have risen steeply, appear detached from the underlying business fundamentals and do
not account for the impact of delays to key reforms or the unresolved structural challenges.
The PER for the Saudi TASI stands at a 48% premium to
the MSCI Emerging Markets index and is 24% higher on
the EV/EBITDA measure. The justification is not clear.
Although the market PER is lower than
in 2006 at the bubble peak, multiple
expansion from 18x to 30x over the
past 20 months seems excessive.
Investors are essentially discounting
profit growth of between 25% to 40%
over the next 12-18 months.
Unfortunately, there are few credible
scenarios in which such a dramatic
increase is likely, and maintaining high
valuations indefinitely is unrealistic.
Unlike US stocks, for example, valuation multiples cannot be attributed to high growth tech companies.
The make-up of the TASI is distinctly “old” economy.
Reservations over index valuations are confirmed by
studies of widely researched stocks.
Analyst forecasts are notoriously error prone but a
review of the price targets for twenty large stocks,
accounting for 70% of the TASI weighting, reveals an
expected average decline of nearly 10%.
Based on the economic outlook, and the scope for
competition and disruption, this may be optimistic.
Also, many of these companies are banks whose
capacity to drastically increase earnings is limited.
Altman Z-score analysis (highlighted in out last commentary) also reveals deteriorating balance sheets and
a capital shortage across the region — many companies have either sought, or are seeking, to raise capital.
Source: Bloomberg
Source: Bloomberg
0
5
10
15
20
25
30
35
40
45
50
0
4,000
8,000
12,000
16,000
20,000
24,000
05/01/2006 05/01/2009 05/01/2012 05/01/2015 05/01/2018
TASI PER (right hand scale)
Source: Bloomberg
MSCI World Saudi Arabia Abu Dhabi Dubai Kuwait Qatar Oman Bahrain MSCI EM
2.4 1.9 -10.2 -20.4 -10.4 -4.1 -9.8 30.2 1.1
PER PBR EV/EBITDA
TASI 30.76 2.08 14.81
MSCI Emerging Markets 20.78 1.81 11.94
Saudi Premium/Discount 48% 15% 24%
Bubble peak
STOCK TASI % PRICE TARGET UP/DOWNSIDE
AL RAJHI BANK 11.99 66.70 58.45 -12.4%
SAUDI ARABIAN OI 10.07 35.50 30.93 -12.9%
SABIC 6.79 96.50 76.87 -20.3%
SAUDI TELECOM CO 4.86 103.40 97.48 -5.7%
NATIONAL COMM 4.27 40.30 42.71 6.0%
SAUDI BRITISH BK 2.72 25.80 25.33 -1.8%
BANQUE SAUDI FR 2.80 32.60 27.94 -14.3%
RIYAD BANK 2.77 19.22 20.26 5.4%
SAMBA 2.61 28.55 28.18 -1.3%
ALINMA BANK 2.30 16.36 15.40 -5.9%
ALMARAI CO 2.19 57.80 51.99 -10.1%
SAVOLA 2.10 53.80 44.05 -18.1%
ETIHAD ETISALAT 1.60 31.90 25.74 -19.3%
JARIR MARKETING 1.57 188.00 176.34 -6.2%
SAUDI ARABIAN FE 1.30 83.00 76.25 -8.1%
SAUDI ELECTRICIT 1.86 22.18 18.43 -16.9%
ARAB NATL BANK 1.27 20.56 19.15 -6.9%
SAUDI ARABIAN MI 1.31 41.35 33.40 -19.2%
BANK ALBILAD 1.20 24.32 22.58 -7.1%
YANBU NATIONAL P 1.09 60.00 48.93 -18.4%
Source: Bloomberg

4. Nomura Asset Management U.K. Limited Dubai branch October 21st , 2020
Page 4
All About Oil
The health pandemic was unexpected but its consequences have been catastrophic for the millions afflicted
by the virus and the billions whose livelihoods have been impacted.
The most direct economic effect on the GCC has been the sharp decline in global demand for oil that has
left prices significantly (30%) below last year — Brent oil has averaged $42 this year versus in $60 in 2019.
Despite the hit to prices, lower exports
and reduced revenues the Saudi stock
market has performed surprisingly well
— much better than the historical
correlation with oil prices at normal
exports volumes might suggest.
The assumption is that oil will rally
sharply and corporate profits recover
fully once the pandemic is over — it’s a
possible but uncertain outcome given
the prevailing headwinds for both.
The pandemic has lasted longer than anticipated, oil demand is low but limited supply has supported prices.
However, keeping discipline among OPEC+ producers will become increasing difficult as many member
states come under intensifying fiscal pressures to boost revenues.
A prolonged period of low prices may not be too bad for the GCC producers if high cost producers,
burdened with high debts and low returns, exit the industry. A drop in demand could then be offset by
decreasing supplies that should keep equilibrium prices within a reasonable range.
In the meantime the GCC is facing a period of
transformation with potentially diminishing wealth.
The pandemic has highlighted the fiscal constraints
within which reforms must be implemented.
While central banks moved swiftly to liquefy the
banking system and maintain the flow of credit, the
fiscal response has been less robust.
Saudi Arabia’s policy reaction to the lockdowns
was the most proactive among the GCC countries
but it still ranks poorly in an analysis of global fiscal
responses by Oxford Economics.
Employment PMIs have fallen across the region and the Saudi unemployment rate has risen to 15.4%.
Reviving job growth amid increasing fiscal austerity and depressed corporate earnings will be difficult.
Economies will bounce back from covid-suppressed levels but the IMF's projected GDP growth for Saudi
Arabia of -5.4% followed by 3.1% in 2021, and -6.6% followed by just1.3% for the UAE are disappointing
given the stronger global recovery forecast from -4.4% to 5.2% next year.
@sflivermore
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
01/01/2016 01/12/2016 01/11/2017 01/10/2018 01/09/2019 01/08/2020
Saudi TASI Brent Oil
Source: Bloomberg
Divergence?

5. Nomura Asset Management U.K. Limited Dubai branch October 21st , 2020
Page 5
Importing Capital
Saudi Arabia’s budget deficit is expected to reach 12% of gross domestic product this year and to narrow
to 5.1% next year even as the government plans to cut spending by 7% — the quality of its balance sheet
may deteriorate in the short term, and it will require external funding.
The GCC, which has been a net exporter of capital
for many years, might need around $490 billion in
combined deficit financing over the next three
years, according to S&P Global Ratings.
The country forecasts by Oxford Economics look
particularly perilous for Kuwait and Oman.
The region is asset rich and its largest economies
boast solid credit ratings, but raising these sums
from the capital markets and securing fresh equity
into frail companies will require digging deep.
Moreover, the GCC’s massive need for capital comes at a time when investors are increasingly wary of
hydrocarbon investments and focused on Green financing, and Ethical, Social and Governance factors.
Borrowers hoping to tap the international capital markets will need to improve disclosures, transparency
and corporate governance, and perhaps offer better terms and protections.
Important progress has been made on structural reforms but these are not nearly enough to have created
a meaningful transformation in the drivers of economic growth. Oil is still overwhelmingly critical.
The litmus test for diversification must be based on the ability of countries to meet their bills even if oil
prices remain low. No GCC country passes that test without dipping into savings or borrowings.
The universal cry for deep structural reforms over the past twenty years have not fallen entirely on deaf
ears but the region is well short of where it should have been by 2020.
Blessed with abundant riches and an educated and entrepreneurial population, it is difficult to comprehend
how the Kuwaiti economy, for example, is so ill-prepared for a post-hydrocarbon world.
While others may be more diversified and better equipped, the pandemic has delayed crucial reforms and
made some decision even less palatable. Every day that reform is deferred is another dollar wasted.
Now is not the time for incremental change but for courageous choices even if they ruffle feathers and
upend decades of established policy. Such examples are far too few, even in the private sector.
Last year Oman’s sold 49% in its electricity transmission company to the State Grid Corporation of China,
the world’s largest utility company. Oman raised money, kept a majority stake, attracted valuable FDI and
expertise that will increase operating efficiency and improve customers service.
More recently ADNOC raised $10.1 billion from the sale of a stake in its natural-gas pipeline, and a further
$2.7 billion for a 49% stake in its property portfolio — both of which freed up capital for better use.
@sflivermore

6. Nomura Asset Management U.K. Limited Dubai branch October 21st , 2020
Page 6
Technology Never Sleeps
Concerns over the challenging outlook for the hydrocarbon sector have been validated by the torrent of
news from energy companies, and developments in the electric vehicle and renewables sectors.
The IEA has indicated that oil demand may not fully recover until 2025, BP is pivoting towards renewables,
and Exxon has been unceremoniously expelled from the Dow Jones Industrial Average after 92 years.
Following poor results and a dividend cut, Shell declared that "the pandemic will result in lasting changes to
the world’s energy consumption and it’s hard to say if oil demand will ever return to levels seen in 2019".
Investors in fossil fuels have suffered, and not just
because of the pandemic. The underperformance
goes back several years and led to extensive value
destruction that can no longer be overlooked.
Investors can ignore the hype over Tesla/Musk, or the billions being poured by global automakers into EVs,
or falling battery costs and improving range, or forecasts by big oil for peak demand, or consumer trends,
or government regulations permanently phasing out petrol-cars. Ignoring them all, however, is pure folly.
“Facts do not cease to exist because they are ignored” — Aldous Huxley.
Moreover, in a politically divided world, there are few issues as unifying as the fight against climate change.
Joe Biden has pledged to “rejoin the Paris climate deal, spend $2 trillion on clean energy, decarbonise
American electricity and electrify swathes of the country’s transport sector” — Financial Times.
But even without the political endorsement, technology has been advancing rapidly to the point where
renewable energy and electric vehicles are commercially compelling, even absent of any subsidies.
Global car sales peaked in 2017 and while they should rise again over the next few years, it is likely that
sales of petrol-based internal combustion engines (ICE) have peaked. The number of cars needing petrol
has already started to shrink, especially in the important developed markets.
Last month electric vehicles accounted
for a record 61.5% of all new car sales
in Norway as Volkswagen’s affordable
new ID.3 hit the market. Carmakers
are expected to launch 330 EV models
in Europe over the next five years.
The markets have sent an unambiguous
message by rewarding green stocks.
The first US clean energy producer
NextEra is more valuable than Exxon.
Tesla is literally off the charts!
The Saudi Public Investment Fund has made some investments in these sectors but SWFs are way behind
the curve and should consider pouring tens of billions into renewables and the EV ecosystem.
There is no certainty about timing and the hope for hydrocarbon economies is that the energy transition is
slower than the markets are predicting, but it’s best to plan for the worst.
Source: Bloomberg
43.6%
15.3%
29.0%
-50.8%
-60%
-40%
-20%
0%
20%
40%
60%
25/10/2019 25/01/2020 25/04/2020 25/07/2020 25/10/2020
Green Gold
S&P Renewable Energy Index S&P500 NextEra Exxon
Source: Bloomberg, NAM
Indices 1 Year Change 5 Year Change
Bloomberg World Index 11.4% 37.6%
Bloomberg World Oil & Gas Index -23.3% -22.5%
Bloomberg World Coal Index -8.0% -27.8%

7. Nomura Asset Management U.K. Limited Dubai branch October 21st , 2020
Page 7
Dubai Property — Contrarian Call
GCC equities do not rank cheaply among their global peers and while bonds appear reasonably priced, the
best relative asset valuations is probably to be found in regional real estate.
The Dubai property market is the most transparent and easiest to trade for international investors and
though its recent performance has been very poor there are reasons for long term optimism.
 Prices have fallen by over 40% from the most recent peak in 2014 and are
now comparatively cheap when benchmarked against other global cities.
 Rents have fallen too but yields, even after the adjustment, remain attractive.
 The currency is pegged to the US Dollar and there are no capital controls.
 Transaction costs are low compared to sales taxes, stamp duty and other
fees that can easily amount to double-digits in other jurisdictions.
 There are no taxes on income or capital gains — investors keep all earnings.
 Financing options have improved and are more competitively priced.
 Dubai has structured regulations and an increasingly robust legal framework
to protect international investors.
While supply continues to outstrip demand
amid deteriorating economic conditions,
Dubai’s population has been rising consistently
— by 90% since the global financial crisis —
and is projected to reach five million (+47%)
by 2027 or shortly thereafter.
Pent-up demand among the large expatriate
population, the best-ever mortgage rates and
a new retire-in-Dubai “golden visa” program
are expected to also boost the market.
According to UBS “Dubai’s property market has reached a new
cyclical low and the valuation score is close to depressed levels”.
The score is a weighted average of five standardized city sub-indexes:
price-to-income; price-to-rent; change in mortgage-to-GDP ratio;
change in construction-to-GDP ratio; price-city-to-country indicator.
By this metric Dubai is close to being undervalued and ranks very
favourably among the twenty-five selected housing markets.
Rental yields of between 6%-8% are considerably higher than the
prevailing 3-month Emirates Inter-Bank Offered Rate at 0.5% and
could deliver double-digit returns with only modest assumptions
about rental growth and capital values.
Over the short term prices can be volatile and regulations can
change but Dubai real estate seems well placed to benefit from a
prolonged period of low interest rates and a recovery in demand.
City Price per SqFt
Hong Kong $4,440
New York $2,490
Geneva $2,000
London $1,830
Singapore $1,490
Moscow $1,250
Mumbai $1,130
Berlin $1,030
Bangkok $840
Dubai $560
Source: Savills
276,301
370,788
689,420
862,387
1,321,453
1,905,476
2,446,675
3,355,900
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
1980 1985 1995 2000 2005 2010 2015 2019
Dubai Population Growth
Source: Dubai Statistics Center
Population has grown by 44% every five years, and
by 90% since the Global Financial Crisis in 2009

8. Nomura Asset Management U.K. Limited Dubai branch October 21st , 2020
Page 8
The Bottom Line
The pandemic has created all sorts of unanticipated headaches for GCC decision makers and constrained
their ability to deal with pressing economic issues. Nonetheless, there is a sense that more should be done.
The IMF’s latest growth forecasts suggest that
it may be 2022 or even 2023 before output in
Saudi Arabia and the UAE recovers to their
2019 levels — two or three ‘lost’ years.
The GCC economies need stimulus through
focused spending on transformative programs
that can boost qualitative growth.
Alas, regional SWFs continue to be fairly shy
about engaging proactively in the domestic
economy despite the clear opportunities.
Dealing with this awful pandemic and guiding world economies towards health and prosperity may be the
defining challenge of this generation.
The IMF advises that a post-pandemic reset should address legacies of the crisis (including debt/inequality)
and an accelerated transition to low carbon and digital economies.
The MENA region has historically underperformed its potential and was handed a sobering warning by the
IMF in its latest report. It is dealing with conflict, political instability and deep rooted macroeconomic
challenges, and is danger of falling deeper behind the rest of the world. It’s time for action.
“Well done is better than well said” — Benjamin Franklin.
Stay safe and well.
Tarek Fadlallah, CFA
Disclaimer: Nomura Asset Management U.K. Limited, Dubai Branch trading as Nomura Asset Management Middle East (“NAM Middle East”)
in the Dubai International Financial Centre ("DIFC") (Registered No. CL1563) is regulated by the Dubai Financial Services Authority ("DFSA").
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This report was prepared by NAM Middle East, a branch of Nomura Asset Management U.K. Limited (“NAM UK”) from sources it reasonably
believes to be accurate. The contents are not intended in any way to indicate or guarantee future investment results as the value of
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authorised and regulated by the Financial Conduct Authority in the United Kingdom. Prices correct at time of research and may be volatile.
106.7
103.5
100.4
90
95
100
105
110
2019 2020 2021 2022 2023
GDP Growth Forecasts
World Saudi UAE
Source: IMF, NAM estimates for 2022/2023