Van Agtmael singles out small caps, Qatar and Saudi Arabia for 2010

Antoine van Agtmael (pictured), the Chairman and CIO of Emerging Markets Management (EMM), and whom Bloomberg credits with coining the term “emerging markets” back in 1981, opined that while equities among developing nations are probably fairly valued (the corresponding MSCI trades at 12.8x estimated earnings for 2010, compared with its four-year average of 12.1), small caps in said markets are still lagging (6.2x after doubling last year) and may see increased interest from institutions going forward.  He also mentioned Qatar and Saudi Arabia in particular among those “frontier” countries where market sentiment may currently lag inherent value: 

“Qatar may be one of the most attractive among the smallest developing nations known as frontier markets, van Agtmael said, citing the pace of economic growth, the development of the Middle Eastern country’s real estate market and its gas reserves.  The investor also favors Saudi Arabia, saying the nation is a ‘huge economy with huge oil reserves.’”

Two industries to keep an eye on in each country, respectively, continue to be real estate and banking.  While commerical prices in Qatar fell between 20-30% in 2009, for instance, they are likely to stabilize in the second or third quarter of this year according to DTZ, an industry consultant, whereupon they should trend up again on the back of the overall economy’s expected, LNG-fueled 16% growth, as well as the overall industry’s cemented and collective distrust for “Dubai’s flawed, speculative building model.”  Furthermore, government endorsed consolidation in the property development market may ultimately concentrate the allocation of revenues going forward, leading to higher enterprise values.

As for Saudi Arabia, Silk Invest hinted to investors last week an impending paradigm shift in the kingdom’s mortgage financing practices that likewise could be a boon for future cash flows in both the region’s financial and property management sectors:

“A Saudi mortgage law, which has been in planning stages for almost a decade, is likely to be passed in a few months from now. The implementation of the mortgage law is expected to drive Saudi housing demand and prices as more people access the market. If the law is finally put into place, it could usher in a new boom period for mortgage financing in Saudi Arabia, an area traditionally avoided by financial institutions due to a lack of proper regulation.”