· After a lengthy period of financial repression the era of global asset reflation appears to be reaching its inevitable conclusion. · As the outlook for the global economy appears to be weakening, the prospects for the GCC economies may be getting better. · Elevated oil prices have helped replenish state coffers and a flurry of policy initiative should revive economies.

1. Nomura Asset Management U.K. Limited Dubai branch October 16th, 2018
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 16th, 2018
The Arabian Markets
Highlights:
 After a prolonger period of
financial repression the era of
global asset reflation appears
to be reaching its conclusion
 Virtually all asset classes
(international equities, fixed
income, commodities, real
estate) have suffered losses,
some very steep, this year
 As the outlook for the global
economy appears to be
weakening, the prospects for
the GCC economies may be
getting better
 Elevated oil prices have
helped replenish state coffers
and a flurry of policy initiative
should revive economies
 Asia has underperformed, is
unloved, under-owned and
increasingly attractive to long
term bargain-hunters
Content:
FAANG...tastic 2
Indian Summer 3
Beyond the Horizon 4
Performance/Valuation 5
Private Equity 6
Asia Unloved 7
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
Saved by the Barrel

2. Nomura Asset Management U.K. Limited Dubai branch October 16th, 2018
Page 2
FAANG...tastic
Until last week the strength of the US economy, the performance of the S&P Index and Apple’s ballooning
capitalisation had disguised a relatively disappointing performance for financial assets around the world.
Excluding a handful of US tech stocks virtually all asset classes — international equities, fixed income, real
estate, commodities — have suffered losses, some very steep, this year.
An equally weighted basket of the 11 asset classes shown in the table above — approximating holdings by a
typical pension fund — is down 5.3% this year and rescued from a worse outcome only by the positive
returns from the S&P500 and the Russell 2000 stocks.
The global economy is continuing to grow but the ratcheting of quantitative tightening by the US Fed this
quarter will have repercussions, especially if yields spike higher and the dollar rallies significantly.
Trump’s strategy of fighting on all fronts with the tenacity of a Manhattan real estate mogul may ultimately
succeed but the stakes are high and the cost of a single mishap much more consequential than a failed
property transaction.
It’s assumed that Trump is playing a high stakes game of chicken on trade but decades of globalization,
with all its benefits to the world economy, are being rolled back with potentially profound consequences.
The Rubicon has not been crossed yet but the point of no return may not be far away.
The impact of reduced international trade on the Gulf region could be big — a slowing global economy will
hurt demand for oil, travel and tourism, and damage prospects for shipping, ports and logistics.
The consensus is that the world economy will breeze through next year but a recession is forecast in 2020
— worrying partly because unanimity among economists guarantees that the timing is wrong!
Market corrections and recessions are difficult to predict but catalysts are easier to identify and monitor.
The high levels of global debt and rising interest rates is a classic and toxic mix that could trigger either
given the risks from trade wars, deteriorating fiscal balances, incendiary geopolitics and a no-deal Brexit.
Ironically, as the outlook for the global economy appears to be weakening, the prospects for the GCC
economies may be getting better — a view acknowledged by the IMF earlier this month when it upgraded
its growth forecasts for both this year and next.
8.8
-5.3
-8.1
2.9
-4.0
-7.3
-16.1
-16.6
-20 -15 -10 -5 0 5 10
MSCI GCC Countries Index
MSCI Eastern Europe Index
MSCI Euro Index
S&P 500 Index
MSCI ACWI Index
Japan Topix Index
MSCI BRIC
MSCI AC Asia Ex. Japan Index
Equity Indices % Year To Date (US$)
Source: Bloomberg, NAM
%
Multi-Class Basket YTD Return
S&P 500 Index 2.9
MSCI ACWI -4.0
MSCI EURO -8.1
MSCI EM -16.1
MSCI BRIC -16.1
RUSSELL 2000 1.1
JPMGlobal Aggregate Bond Index -2.9
Barclays High Yield Bonds -3.5
FTSE NAREIT -6.2
CRB Index -3.1
Dollar Index (inverse) -2.3
Average Return (equal weight) -5.3
Source: Bloomberg

3. Nomura Asset Management U.K. Limited Dubai branch October 16th, 2018
Page 3
Indian Summer
The release of GCC economic data is excruciating slow but most indicators suggest that growth has been
lacklustre, and while much of the focus has been on Saudi Arabia, recent policy developments in the UAE
underscore the disappointing performance of its economy.
The currency peg has forced interest rates higher, fiscal constraints have shackled government activity,
private capital investment has stuttered and consumer spending has slowed.
In Saudi Arabia the exodus of hundreds of thousands of expatriate workers has had a deflationary impact
on demand and led to the closure of thousands of businesses dependant on their custom and labour.
Nonetheless, there is a good chance that
the regional economy will enjoy a period of
better growth and that stock prices could
rally into the year-end.
This is due to elevated oil prices that have
replenished state coffers, a flurry of policy
announcements to reinvigorate economies,
(in the UAE for example), and expectations
that the Saudi government will announce
additional fiscal measures and implement
further reforms over the coming months.
Moreover, government agencies and state enterprises, still able to borrow cheaply, are using this capacity
to fuel their investment activities.
This should put a floor under economic
activity and lift growth moderately for
perhaps the next few quarters.
The Saudi PMI has been trending back
up and non-oil GDP, which at 2.4% in
Q2 was the highest in ten quarters, is
likely to continue its gradual recovery.
The worst may be over for now but
the 6%+ levels achieved in prior years
are a distant fantasy even if they are
more urgently required.
Meanwhile the MSCI / FTSE Russell Index decisions to include Saudi Arabia in their emerging market
indices will necessarily create demand for stocks that is fairly predictable in scale and certain in timing, and
the absence of a significant IPO in the foreseeable future will alleviate concerns over supply.
The combination of these factors is supportive to stocks and may create short term trading opportunities.
Indeed in the midst of the carnage across the emerging markets this year — in Tukey, Argentina and even
China for example — Saudi Arabia has stood out as a steady performer, despite the past few days.
$0
$20
$40
$60
$80
$100
$120
-2%
0%
2%
4%
6%
8%
10%
12%
01/03/2011 01/07/2012 01/11/2013 01/03/2015 01/07/2016 01/11/2017
Saudi Non-Oil GDP YoY (constant prices) vs WTI Oil (rh scale)
Source: Saudi Arabian Central Department of Statistics, Bloomberg
6.26%
Average

4. Nomura Asset Management U.K. Limited Dubai branch October 16th, 2018
Page 4
Beyond the Horizon
Looking farther into the next few years, however, is less encouraging and it requires a leap of faith to
believe that the higher levels of economic growth and corporate profits can be achieved.
This is because there is little evidence of the regional economy weaning off its oil addiction anytime soon,
and few clues as to whether, and how, companies will succeed in a post-oil environment.
There is also discernible frustration among increasingly impatient international investors that the regional
reform program is being hindered by sluggish bureaucracy and procrastination.
While Vision 2030 is less about specific targets and more about ambition and trajectory, the cancellation of
the Aramco IPO makes speedy progress towards its objectives more challenging.
In December 2015 McKinsey estimated that Saudi Arabia needed investments of $4 trillion in the non-oil
economy in order to grow by an annualised 4.5% and create the six million jobs it needs by 2030.
Since then the economy has barely grown, unemployment has risen and foreign direct investment stalled to
a virtual halt — economic transformation is already behind the curve and with grave fiscal consequences.
The deterioration in Saudi Arabia’s fiscal balance is modest still and has not yet affected its credit rating.
Indeed demand for its most recent debt offerings was strong among both local and international investors.
This is partly a function of low levels of debt relative to the size of its economy (currently around 20%),
relief over the recovering oil prices and a lack of attractive alternatives among its emerging market peers.
Nevertheless, debts are rising and forecasts are for budget deficits to continue until 2023 at the very least.
This is not unreasonable but the case for long term fiscal stability must remain credible.
As interest rates move higher the cost of debt increases, the portion of the budget required to fund that
burden rises and access to borrowing gets potentially more difficult.
The higher cost of capital also hurts
corporate profits and affects the relative
appeal of stocks.
The increase in the Saudi Interbank
Offered Rate (SIBOR) since the beginning
of this year has begun to diminish the
relative value of Saudi equities.
The gap between the TASI dividend yield
and the SIBOR fell from 1.35% in January
to 0.3% over the summer and recovered
only slightly. SIBOR is expected to rise
further as the Fed continues to tighten.
With rising rates and governments under fiscal strain to balance their budgets it may be a case of having to
cope with a restrictive monetary environment for the foreseeable future.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
3.6
3.8
4.0
08/2017 10/2017 12/2017 02/2018 04/2018 06/2018 08/2018 10/2018
TASI Dividend Yield vs. 1 Year SIBOR
SIBOR Dividend Yield Difference (rh scale)
Source: Bloomberg

5. Nomura Asset Management U.K. Limited Dubai branch October 16th, 2018
Page 5
TASI Performance & Valuation
The TASI Price to Earnings Ratio (PER) at 16x is below to its 10 year average but the divergence with
other GCC markets is close to its widest levels since the financial crisis.
Hopes of economic transformation have
contributed to heightened expectations
in Saudi Arabia but the markets may have
extrapolated too much and investors
might have to recalibrate forecasts.
The Banking sector (TASI weight 41%)
and Petrochemicals (28%) now account
for 69% of the market cap, rendering
most stocks irrelevant to the index save
for a few companies in the Consumer,
Utility and Telecom sectors.
A crude but interesting measure that can provide a reality check on the size of stock markets relative to
their economies is the Market Cap to GDP ratio. Economies in which the unlisted public sector plays a
large role tend to have low ratios — 186 Saudi companies accounting for 74% of GDP looks high.
The country Price to Economic Growth (P/EG) ratio shows that a premium is being paid for Saudi growth
relative to its emerging market peers, especially India, China, and compared to the UAE.
Saudi bank valuations are not too
demanding but stand above last
year’s compelling levels. Moreover,
their capitalisation is getting close to
some of their larger global peers
which should give cause to pause
and evaluate.
After a powerful rally of 31% over the past year the banks have corrected modestly on profit-taking but
also on concerns that they might be hit with huge retrospective Zakat and tax claims.
Another lurking uncertainty is the speculation that the Public Investment Fund (PIF) might follow up its
reported sale of SABIC by reducing its stakes in the banks that will account for over a quarter of the value
of its remaining locally listed holdings.
Source: Bloomberg
6
10
14
18
22
26
03/01/2008 03/01/2010 03/01/2012 03/01/2014 03/01/2016 03/01/2018
Price to Earnings Ratio
KSA KSA Average GCC (ex-KSA) GCC Average
Source: Bloomberg, NAM
TASI UAE Brazil Russia India China Pakistan Nigeria
Market Cap (US$ bn) 478 207 679 540 846 3,615 50 33
GDP (US$ bn) [2017] 646 349 1,796 1,283 2,264 11,199 279 404
Market Cap/GDP 74% 59% 38% 42% 37% 32% 18% 8%
Price to Earnings 16.0 13.0 19.4 6.4 23.0 11.6 8.9 9.3
Price to Book 1.7 1.5 1.8 0.9 2.9 1.5 1.3 1.5
GDP % [2018e] 2.2 2.9 1.4 1.7 7.3 6.6 3.9 2.1
Price to GDP Growth 7.3 4.5 13.9 3.8 3.1 1.8 2.3 4.4
Source: Bloomberg, IMF
FrontierBRICGCC
Bank PER PBR Market Cap (bn)
National Commercial Bank 13.6 2.4 $35,981
Al Rajhi Bank 14.3 2.6 $36,770
Samba 12.3 1.5 $17,031
ICICI 26.6 1.9 $27,880
Standard Chartered 21.4 0.5 $24,524
Societe Generale 10.2 0.5 $33,026
UBS 37.8 1.0 $53,664
Credit Agricole 10.0 0.7 $30,015

6. Nomura Asset Management U.K. Limited Dubai branch October 16th, 2018
Page 6
Private Equity — A Greek Tragedy
The quantum of funding required to achieve economic objectives is enormous and will need to include
various forms of foreign investment, from listed securities to real estate and private equity.
Private equity can play a transformative role in economic development but the impact and performance of
PE funds in the region has been disappointing, and not just because of recent controversy around Abraaj.
Most managers have tried to ride the economic growth fuelled by the oil boom that began 15 years ago,
typically through minority holdings, while adding little value or expertise to their investees.
Regional PE funds are relatively small and their ability to raise money has been damaged by poor returns
and a historic preference by local investors for direct co-investments in individual deals.
International PE firms have made few investments due to the lack of sizeable opportunities, high valuations,
and political sensitivity around certain deals — Carlyle and Apollo, among others, have walked away.
In 2016 seven funds raised $582 million, down 40% from $992m in 2015 and 75% from the $1,229 in 2014.
The typical ticket size per transaction was around $20m and the average deal was about $50m — the
numbers for 2017 are likely to have been worse.
Outside of Souq’s acquisition by Amazon and the latest funding round by Careem (both VC start-ups)
there have been few consequential PE transactions in the past few years to justify any industry hype.
More worrying perhaps is that there appears to be little on the horizon — economic or legislative — that
suggests that the PE landscape might improve significantly anytime soon.
Coercing privately owned firms to submit to PE buying is difficult, but governments could encourage their
investees to lead in industry consolidation, not only in banking, but across the sector and scale spectrums.
There is also scope to improve the regulatory frameworks to allow greater M&A, increased shareholder
activism or even hostile corporate activity on the exchanges.
In the real estate sector the flows of foreign money into the region are tiny in comparison to the value of
real estate stock. Only Dubai can credibly claim to have attracted foreign investment, and even that is
mostly by retail buyers rather than institutional funds.
There are clear sensitivities around property ownership but there is now an overwhelming economic
imperative that demands modifications to archaic title rights.
The one bright spot is in listed equities where upgrades to the regional markets has already led to foreign
investor inflows and is expected to attract another $11 billion into the Saudi exchanges over the next year.
But too often it feels as though foreigners are being compelled to invest by the index providers and not
necessarily because they are convinced by the underlying growth narrative. The story needs to get better.
This can happen over time as the program of economic reforms become more substantive and visible
across the economy, and as investor confidence grows along with the business opportunities.

7. Nomura Asset Management U.K. Limited Dubai branch October 16th, 2018
Page 7
Asia Unloved
Having initially lagged the rally in the global markets after the financial crisis, Asian stocks recovered in
2016 but have fallen back again in the past year—some of them sharply.
Over the past five years Asia’s performance has been disappointing when compared to the MSCI World
index and the S&P500 index.
A chart of the MSCI Asia index price
divided by the S&P500 index shows
that the ratio is at its lowest levels in a
generation, and that the scale of Asia’s
underperformance since the financial
crisis has been particularly stark.
Recent woes have been prompted by
concerns over tariff wars, currency
devaluations and forecasts of slowing
global growth.
While such concerns must be properly evaluated and discounted, the MSCI Asia index is now trading at a
Price to Earnings Ratio of 11.3x which is nearly half the S&P 500 valuation.
Surprisingly perhaps, the sell off in Asia
has been nearly two decades in the
making with foreign investors steadily
reducing their portfolio weightings.
Global mutual funds are now more
underweight the Asia Pacific markets
than at any other time in history.
Underperforming markets that are
unloved and under-owned are ideal
targets for shrewd contrarian bargain-
hunters seeking to accumulate assets.
Despite robust global economic growth this year, the optimistic call on the Asian markets has been poor
but should not diminish their appeal to long term investors.
Over any meaningful period the Asian markets cannot be ignored and are likely to see their importance
rise in the global indices as their economies maintain a predictable growth path over the coming decades.
Given the volatility of individual markets, be it China or India, a ‘pan-Asian’ exposure may be desirable.
Source: Bloomberg
668
-598
-800
-600
-400
-200
0
200
400
600
800
01-Jan-02 01-Jul-04 01-Jan-07 01-Jul-09 01-Jan-12 01-Jul-14 01-Jan-17
APxJ's allocation in Global Mutual Funds
(Over/under-weight vs. MSCI benchmark in basis points)
Basis Points
Source: EPFR, MSCI, Goldman Sachs Global Investment Research
MSCI Asia MSCI World MSCI BRIC MSCI GCC MSCI Euro S&P500
Year-to-Date -16.6% -4.0% -16.1% 8.8% -8.1% 2.9%
1 Year -14.2% -0.7% -15.0% 10.0% -9.8% 7.6%
3 Year 12.4% 20.9% 17.9% 2.9% 2.3% 35.3%
5 Year 7.6% 26.3% -2.1% 0.4% 14.2% 59.8%

8. Nomura Asset Management U.K. Limited Dubai branch October 16th, 2018
Page 8
The Bottom Line
After a period of unprecedented financial repression, the era of asset reflation appears to be reaching its
inevitable conclusion. The Fed is set to raise rates again and is accelerating its balance sheet unwinding.
These overdue developments reflect a normalisation of economic activity, but this cycle is fraught with
complications because of the astronomical levels of debt built during the period of loose monetary policy.
The performance of financial markets over the past few weeks hints at what is likely to transpire through
the rest of this year and probably into the next. The easy gains are over.
The GCC stock markets have shone relatively brightly among their peers, cheered on by higher oil prices
that have breathed hope into what had been a distinctly worrying outlook not so long ago.
The economic dangers are still lurking and the respite is likely to be temporary, providing an unexpected
and welcomed opportunity to press on with the implementation of transformative reforms.
Three years ago oil prices were sliding towards $30 and the regional economies were heading into freefall.
The turnaround in the price of a barrel of crude has saved the day, but maybe not for long as growing risks
to demand become increasingly evident.
The focus on Tesla’s problems and modest production miss the point of the existential danger that the
electrification of the global vehicle fleet poses to the oil industry. Tesla may be the poster child but there
are dozens of players, including many Asian upstarts, lining up behind the Electric Vehicle revolution.
Investment managers with positive returns this year have earned their fees and will need to be even more
resourceful to maintain a positive performance over the coming quarters.
Best wishes
Tarek Fadlallah, CFA
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