The GCC's Golden Era

Nomura Asset Management U.K. Limited Dubai branch April 10th, 2023
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
April 10th, 2023
The Arabian Markets
Highlights:
 It’s tempting to think that the
worst is over globally but the
degree of uncertainty and scope
for policy errors remains high.
 Inflation has peaked but getting it
back to target on a sustainable
basis wont be quick or easy.
 It is widely accepted that Saudi is
implementing the necessary
reforms. The debate is less
about direction and more over
the speed and the timeframe.
 Perspective is important and
three-quarters of Saudi exports
are still oil-related with limited
visibility on its earnings capacity
in a post-hydrocarbon world.
 Nonetheless, it’s important to
recognize that this is a Golden
Era for the gulf region.
 In what may turn out to be a
tough year for global investors
the GCC should offer better
outcomes than other markets.
Content:
Crisis Déjà vu? 2
History Rhymes 3
GCC Markets 4
Vision Economy 5
Perspectives 6
GCC Golden Era 7
Best in Class 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 Gulf’s Golden Age

Page 2
Crisis Déjà vu?
The markets embarrassed the experts last year with movements in asset prices confounding expectations.
Wide dispersions among forecasts this year suggest that many will be wrong again.
Raising interest rates rapidly after a prolonged period of unprecedented monetary accommodation was
always going to have consequences given how many were lured into the trap of borrowing excessively to
meet their return criteria — remember TINA and FOMO?
Over the past year global assets have shed trillions in value
and recoveries have been narrowly focused and tepid.
No asset has been spared — equities, bonds, commodities,
real estate and hedge funds. There’s been few places to hide.
It’s tempting to think that the worst is over but the degree
of uncertainty and the scope for policy errors remains high.
Whether this is due to central banks cutting too early or
too late remains to be seen.
Luckily, investors are being rewarded handsomely not to gamble unnecessarily with attractive risk free
rates — the most important single factor to determine asset prices — also providing optionality.
Lots of stocks appear on sale but credit spreads remain tight and earnings have yet to decline significantly,
leaving scope for further deterioration in valuations if economies slip into recession.
Bullish investors are counting on a pivot in US interest rate policy though deep cuts seem unlikely as long
as there are risks of second-round inflation effects, particularly from rising service sector costs and wages.
US inflation has peaked but getting to 2% on a sustainable basis will be neither quick nor straightforward.
Bond investors may enjoy a euphoric summer but could be underestimating reversals in structural factors.
The disinflationary period driven by
technology and cheap Chinese labour
allowed real interest rates to stay low or
even negative for much of the past two
decades but this chapter may be over.
Taming the inflationary beast might need
real rates to turn positive.
Burdened by high levels of debt, rising
inequality, an ongoing recalibration of
geopolitical relationships and a shift
away from globalization, it looks to be a
difficult decade for the global economy.
The best guesstimate is for a protracted phase of low returns punctuated by high volatility — in financial
parlance it will be a “trader’s market”.
Asset Class 1-Year YTD
S&P500 -8.8% 6.9%
MSCI World -7.9% 6.8%
MSCI GCC -23.3% -0.8%
Saudi TASI -18.1% 4.1%
Global Bonds -5.2% 3.7%
Brent Oil -15.8% -0.9%
Gold 4.3% 10.1%
HFR Hedge Fund -3.5% 0.0%
MSCI US REIT -23.7% 0.7%
Land Securities UK -18.6% 2.7%
(As of April 8th) Source: Bloomberg
-5
0
5
10
15
20
25
1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
Fed Funds CPI
Source: Bloomberg, NAM
Periods of positive real interest rates
-----------------Disinflation----------------

Page 3
History Rhymes
If you remember watching Fawlty Towers on a cathode-ray tubed television and listening to Roxy Music on
the wireless then you should recall a Britain in which price increases were part of daily life.
Several elements that characterized that bygone era have resurfaced and, even if the parallels are less than
perfect, there are probably lessons to be gleaned from history.
In 1973 the catalyst for UK inflation was an energy shock that was dismissed as an isolated event allowing
monetary and fiscal policies to be eased prematurely to support a cost of living crisis.
US inflation seems to be following a
similar pattern and will continue to
decline in the latter half of the year.
However, grey-haired economists warn
against letting out the “genie” because
inflation is extremely difficult to control
once it becomes embedded.
Pipeline inflation can take months or
even years to emerge and secondary
effects are difficult to predict.
After a couple of false dawns it took eight years, base rates at 17% and a determined Margaret Thatcher to
break the UK inflationary cycle that ended with the deepest recession since the 1930s.
The circumstances are different this time, not least because of the extent of systemic leverage, but there
are plenty of lessons in the historical records.
In the meantime inflation in the UK is at levels that would embarrass policymakers in emerging markets
and there is no prospect of it going back to its target rate anytime soon.
A shortage of workers due to Brexit has empowered unions to demand higher wages that will likely result
in lower productivity and elevated inflation for an extended period.
The economic challenges facing the UK — cyclical and structural — will not be solved swiftly and opinion
polls strongly suggest a left-leaning government at the next general election.
The UK has its unique circumstances but provides a template for how inflation can become embedded and
the difficulties in managing it lower without adverse repercussions.
Unlike the US economy which is somewhat more flexible many developed economies (e.g. Germany) could
struggle to hold down prices at the levels to which they had become accustomed.
2022/23 Jan Feb March April May June July August Sept October Nov Dec Jan Feb
Base Rate 0.25 0.50 0.75 0.75 1.00 1.25 1.25 1.75 2.25 2.25 3.00 3.50 3.50 4.00
CPI 5.5 6.2 7.0 9.0 9.1 9.4 10.1 9.9 10.1 11.1 10.7 10.5 10.1 10.4
Real Rates -5.25 -5.70 -6.25 -8.25 -8.10 -8.15 -8.85 -8.15 -7.85 -8.85 -7.70 -7.00 -6.60 -6.40
Source: Bloomberg
9.9
24.5
9.1
6.0
-1
1
3
5
7
9
11
0
5
10
15
20
25
30
1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983
Inflation Deja vu?
UK Inflation [lh scale]
US CPI (since July 2017) [rh scale]
100 months
False Dawn
Margaret Thatcher
elected May 1979
secondary effects

Page 4
GCC Markets
GCC stock markets have given back some of the relative gains achieved during the pandemic but continue
to comfortably outperform their peers across the emerging markets.
Most EM funds have been underweight
Saudi Arabia and the GCC. This has
been a poor call despite the decline in
these markets last year.
For no obvious reason the MSCI GCC
index has shadowed the MSCI EU index
fairly closely over the past decade
though it significantly underperformed
the MSCI US and MSCI Japan indices.
Broadly speaking, the GCC has been a
reasonable investment destination.
GCC stock markets — particularly those outside Saudi Arabia — are now among the cheapest in the
world based on traditional metrics such as price to earnings and price to book ratios.
There is a common view among regional
investors that the GCC is underappreciated
by international investors but capital tends to
be geographically and culturally agnostic — it
chases the best opportunities wherever they
happen to be around the world.
Some of it may be related to a lack of information and experience, an aversion to hydrocarbon economies
or perhaps disappointment in profit growth at non-banks that has been basically flat over the past decade.
Saudi banks have been under scrutiny due to unfortunate events in Silicon Valley and Switzerland but have
come through unscathed thanks to high capital ratios, robust regulations and stringent oversight.
The Saudi TASI bank index is up 7%
since the crisis broke last month while
the US KBW banking index has fallen
26% and the Euro Stoxx bank index is
down 11% amid continued uncertainty.
Furthermore, over the past five years
— and despite a correction last year —
Saudi banks have risen a rewarding 79%
beating both their European (28%) and
US (29%) counterparts.
The world economy teetered on the
edge of the abyss during the global financial crisis and the banking sector is under the spotlight once again.
PE RATIO PB RATIO EV/EBITDA DIV YIELD
MSCI USA 20.4 4.1 13.6 1.7
MSCI WORLD 17.9 2.9 11.4 2.2
MSCI WORLD (EX-USA) 14.3 1.8 8.3 3.4
MSCI EMERGING MARKETS 12.6 1.6 8.0 3.2
MSCI AC ASIA PACIFIC 15.1 1.5 8.1 3.0
MSCI EUROPE 13.8 1.9 8.9 3.4
MSCI SAUDI ARABIA 16.5 2.1 NA 3.0
MSCI GCC (ex-KSA) 12.5 1.6 NA 3.6
Source: Bloomberg
-8%
-26%
7%
-11%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
01/03 06/03 11/03 16/03 21/03 26/03 31/03 05/04 10/04
Bloomberg World Banks KBW US Banks TASI Banks Euro Stoxx Banks
46%
-6%
55%
100%
169%
-50%
0%
50%
100%
150%
200%
250%
03/2013 03/2015 03/2017 03/2019 03/2021 03/2023
MSCI GCC MSCI EM MSCI EU MSCI Japan MSCI US
Over the past ten years MSCI GCC broadly
tracked the EU and beaten the EM

Page 5
The Vision Economy
The task of transforming a structurally rigid economy, in a deeply conservative society with a historically
sluggish bureaucracy, is among the most daunting in economic history. However, it is now widely accepted
that Saudi Arabia is implementing the necessary reforms. The debate is less about the direction and more
over the speed and the timeframe.
Without the Vision 2030 roadmap the prospects of economic transformation were essentially zero — it
turned a mission impossible into a mission that might be possible.
As is common in emerging economies it is the public sector that is leading the national transformation with
the Public Investment Fund (PIF) playing a prominent role alongside several key ministries.
The PIF has taken an anchor role in energy, tourism, cultural and urban developments (AlUla, Qiddiya,
Diriyah Gate, King Salman Park) and NEOM, incubating these projects much like a private equity fund.
PE funds typically make a few poor investments, some moderately successful ones and generate most of
their returns from a handful of spectacular winners. The PIF may have similar outcomes.
Unlike ordinary PE funds, however, the stakes in Saudi Arabia are systemically important and not measured
only in immediate payback and financial returns. Project success is largely determined through the impact
on delivering new industries, creating employment opportunities and diversifying the economy.
The PIF is nurturing programs for which the Saudi private sector has insufficient skills and low risk appetite
but has limits on how much J-curve deficits it can sustain until these greenfield ventures turn a profit. The
magnitude of the liability it will need to carry and errors it makes will only become evident in hindsight.
The PIF has come under scrutiny for its activism but who else could have led the transformation taking
place or undertaken the scale of projects required? Indeed private companies continue to ride the coattails
of public spending through contracts and capital allocations.
Fortunately, after absorbing blows from the withdrawal of subsidies and increases in value added taxes the
private sector is beginning to jump on-board the Vision train by participating in projects without insisting
on SIDF sponsored loans, PIF capital and guaranteed off-takes.
Increasing clarity on industrial policy and regulatory frameworks is also encouraging private firms to
consider the widening array of opportunities arising within newly emerging sectors.
One problem is that many companies remain focused on managing existing operations, often hanging on to
archaic business models instead of adapting, investing in new technologies or in research and development.
Outside of some exciting developments by a handful of eye catching start-ups the private sector continues
to lag in terms of innovation and value-added strategies. Saudi doesn’t need another bottled water brand.
Poor growth in corporate profits over the past decade speaks volumes to a lack of creativity and raises
questions as to whether those who prospered under the old system are equipped to succeed in the new.
Ultimately the risks and rewards must be more evenly distributed between private and public capital, and
the balance between the two will provide an important indicator of economic progress.

Page 6
Pragmatic Perspectives on KSA
It’s hard to be negative about an economy that grew 9% last year in a progressive reforming environment.
The authorities have gone the extra mile and left a cake at the end with a cherry on top. Riyadh is buzzing.
But perspective is important and around three-quarters of Saudi Arabia’s exports are still oil-related with
limited visibility on its foreign currency earnings capacity in a post-hydrocarbon world.
Claims that the economy is well on its way to being independent of oil revenues is bold but disingenuous.
Oil accounts for the overwhelming bulk of exports, state revenues and lubricates the non-oil economy.
And despite the establishment of new bodies and confusingly numerous initiatives — such as NTP, NIDLP,
National Champions and LCGPA — there have been relatively few high profile successes so far.
Most foreign corporations still consider Saudi Arabia as a source of, rather than a destination for, capital.
A good chunk of FDI announced thus far has been by Saudi-affiliated companies such as Lucid Motor, or
those seduced by heavily subsidized economics and the promise of tax holidays not available to everyone.
The situation will get better and the trickle may become a torrent but we don’t see it yet.
The attempt to loop international investments back into the domestic economy is clever but the test of
Saudi Arabia’s appeal to competitive capital is whether foreign investors will come voluntarily.
In the five years immediately after Vision 2030 was announced the UAE attracted more than double the
FDI of its larger neighbour. FDI into Saudi is headed in the right direction but the trajectory is low.
Domestic partners also appear to be shy in stepping up their investments despite seemingly generous proposals.
The Shareek program offered incentives to enable investment of $1.33 trillion by 2030 but two years after
launch there have been only framework agreements on around $51 billion (3.8%) of projects.
To be fair many of the initiatives require time to produce results and Vision 2030 is as much about mind
set and enablement through societal changes that are being successfully implemented.
Nonetheless, the clock is ticking on a self-imposed timeline and in the global race against redoubled efforts
to decarbonize the world economy. Since the outbreak of the Ukraine war, governments that had only
paid lip-service to zero-emission targets have refocused on energy security.
And while the fossil fuel community might feel vindicated in their warnings about unrealistic transition
objectives, the multi-year demand outlook for oil continues to dim as the political will to reduce its use
strengthens and technology provides alternative solutions.
Low-cost producers have less to worry about but it is sensible to continue planning with the assumption
that demand will decline as car fleets go electric, and the sun and wind power an increasing proportion of
global energy needs.
Saudi Arabia 2021 2020 2019 2018 2017 2016
Total Exports ($bn) $256 $170 $233 $267 $203 $201
Petroleum-related 70.8% 66.1% 75.4% 74.2% 71.4% 73.6%
Petroleum+Petrochemicals 89.9% 87.3% 93.7% 91.5% 89.9% 90.8%
Source: www.oec/world/en
($ million) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2017-21
Saudi Arabia 38,151 32,100 28,105 16,308 1,282 8,865 8,012 8,141 7,453 1,419 4,247 4,563 5,399 19,286 34,913
UAE 13,724 4,003 1,948 7,152 9,567 9,765 11,072 8,551 9,605 10,354 10,385 17,875 19,884 20,667 79,166
FDI Inflows
Source: World Investment Report UNCTAD
(Since Vision 2030 launch)

Page 7
The GCC’s Golden Era
Lost in the recent focus on Saudi Arabia is the continued and remarkable evolution of other economies
such as Qatar and the UAE — reforms in the Dubai real estate market twenty years ago may have been
the initial catalyst but so much has changed despite some growing pains.
Qatar hosted a magnificent football World Cup that showcased its tremendous development, and its plans
to expand LNG exports by two-thirds will see money flow into Doha’s coffers for decades to come.
Other countries such as Kuwait and Oman may not have seen the same scale of progress but are enjoying
incrementally better prospects nonetheless.
The UAE remains the regional model for growth and diversification with Dubai adding to its appeal as a
premium hospitality destination by positioning itself as a competitive international commercial hub.
Outsiders may judge Dubai’s development through the steel and glass towers but its most recent growth
spurt has been driven by enlightened social and legal reforms that build on a tolerant track record.
Dubai has embraced millions of foreigners, made considerable compromises to accommodate them and
approved regulations to safeguard their employment, property and commercial rights.
Adding software to the superb hardware (infrastructure) has allowed the emirate to build depth to an
economy on its way to sustainable growth that is truly independent of the regional outlook for oil.
Over the short term Dubai faces headwinds from the higher cost of materials and food inputs, rising rents,
wages and elevated borrowing costs. Corporate taxes from June will add to the squeeze on profits and
firms might hire less, invest less and pay less dividends.
More problematic is that business fees remain high, especially for SMEs, and certain industries could benefit
from increased competition — telecoms is often cited as a sector that’s due a shakeup.
The effort to increase listings on stock exchanges is positive but equally critical is the need to strengthen
corporate governance frameworks to reduce scope for undesirable practices and unsavory incidents.
The IMF’s warnings of the weakest global economic growth outlook in over three decades is in contrast to
expectations for GCC economies to continue expanding under their government-directed strategies.
Saudi Arabia’s Vision 2030 grabs the headlines given its scale and lofty ambitions but each GCC country is
pursuing its own version that promises to underpin economic growth for the foreseeable future.
Notwithstanding the multitude of remaining challenges it’s important to recognize that this is a Golden Era
for the gulf region — a period in which governments are energetically reforming, sovereign wealth funds
are actively supporting diversification strategies, stock exchanges are opening up, regulators are embracing
global best practices and business opportunities are multiplying.
The brightest talents are rushing to work and play in economies that have never been bigger, stronger,
more diversified or more integrated into the global economy.
These are the good old days.

Page 8
Best in Class
In a competition among precarious choices the Saudi stock market looks relatively better positioned to
withstand the uncertainty of the next few months for a number of reasons:
Valuations: The trailing Saudi TASI PE multiple at around 16x is historically reasonable and its premium over
the MSCI EM has fallen back in-line with
their previous relationship.
Profits: The quality of corporate earnings
has improved after the withdrawal of
government subsidies and is expected
to stay flat but at elevated levels.
Interest Rates: The degree of financial
leverage at Saudi companies is fairly low
compared to most international peers.
Furthermore, SAIBOR appears to have
peaked along with US interest rates.
Performance: The Saudi TASI has lagged over the last year and is down by more than 15% compared to the
MSCI World (ex-US) since May.
Banks: The dominant sector in the
TASI index (35%) is expected to enjoy
robust earnings due to high net interest
spreads while overall asset quality
should remain good and non-performing
loans low.
Economy: Given the certainty of spending
by government, aggregate demand is
expected to be healthy and support
GDP growth of perhaps 3%.
Fiscal Balance: The Saudi government is likely to run a budget surplus when other countries are struggling.
S&P upgraded Saudi Arabia’s credit rating to A, Fitch raised it to A+ and Moody’s added a positive outlook
to its A1 rating.
Currency: The US dollar is no longer overvalued and the pegged Saudi Riyal should benefit from its stability.
Oil: Always difficult to forecast but Chinese demand, reduced scope for US SPR sales and a determined
OPEC+ should limit further downside and keep prices at levels considered comfortable by producers.
Foreign Investors: Active EM managers have been significantly underweight Saudi stocks and might look to
adjust positions after recent underperformance. MENA markets account for 7% of the MSCI EM index.
In what may yet turn out to be another tough year for global investors Saudi Arabia and the GCC should
offer better risk-adjusted outcomes than other markets.
-10
-5
0
5
10
15
20
07/2006 07/2008 07/2010 07/2012 07/2014 07/2016 07/2018 07/2020 07/2022
Saudi TASI PER - MSCI Emerging Markets PER
Source: Bloomberg@tarekfad
-7%
-3%
-18%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
04/2022 06/2022 08/2022 10/2022 12/2022 02/2023 04/2023
MSCI World MSCI World ex-US TASI

Page 9
The Bottom Line
Nearly half-way towards its ambitious timeline, Saudi Arabia appears to have built many of the necessary
tools to achieve its vision but the trajectory of its path needs to steepen over the coming years.
The task to transform is both colossal and unprecedented, however, Saudi Arabia, Qatar and the UAE are
moving as fast as their individual circumstances allow.
Developments have not gone unnoticed in the neighbouring countries (Kuwait, Oman, Bahrain) and these
three will hopefully lead the next phase in the region’s evolution.
Thankfully, there's plenty of scope to deregulate and reform the economy, lower the price of goods and
services, cut the costs of doing business and improve competitiveness even further.
Iran is an unpredictable actor but the warming of regional relations can be hugely consequential from an
economic perspective. Specifically, the Middle East would benefit greatly from the creation of a large
trading bloc: https://www.ft.com/content/83eb1cdc-6ae4-11e2-9871-00144feab49a
Financial markets are erratic and volatile but some investors have already declared an end to the downside.
History and personal experience suggests that we should expect a few more nasty surprises.
Eid Mubarak
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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