Ian Cowie: risks now outweigh rewards, so it’s time to sell

Violent events can overtake the best-laid plans and a bloody war in the Middle East is an extreme example of how strategies set out in calmer times are being brutally disrupted.

Coming down from the clouds, that’s why I have sold all the shares I held in the Gulf Investment Fund (LSE:GIF), despite intending to hold them forever just a couple of weeks ago.

• Invest with ii: Find Investment Trusts | Interactive investor Offers | Transfer an Investment Account

How can I justify this? By siding with the somewhat erratic economist and excellent DIY investor John Maynard Keynes, who said: “When the facts change, I change my mind.”

As recently as 6 October - or the day before the war began - there were good reasons to hope that the Middle East might be on the path of peaceful co-existence. For example, the “Abraham Accords” - agreements signed by Israel with the United Arab Emirates (UAE), Morocco and Bahrain three years ago - committed these formerly hostile countries to normalise relations.

More recently, Crown Prince Mohammed bin Salman of Saudi Arabia met Jake Sullivan, the US’ national security adviser, at the port city of Jeddah in July. Afterwards, officials briefed foreign correspondents that America and Saudi Arabia had agreed on the outlines of a deal for the latter to recognise Israel. This was seen as a step towards the creation of an independent Palestinian state.

All the hopeful indicators above are now in doubt. Indeed, some analysts argue that disrupting the American rapprochement with Saudi Arabia was the main motivation for the Hamas attack.

• Funds and trusts four professionals are buying and selling: Q4 2023
• When is it time to sell a fund, investment trust or share?
• How Andrew Pitts’ 20 trust tips are faring amid discount pain

Never mind the geopolitics, here’s how it affected this small shareholder. I had paid $1.86 in February 2022, for GIF shares that had climbed to $2.49 by the time I took profits this summer, in August, to help repay a fixed-rate mortgage that is due to expire at the start of next year.

Then I sold the rest - worth more than 2% of my life savings - at $2.21 on 12 October. They traded at $1.93 this week.

Even though GIF has no assets in Israel or Gaza, my reasoning is that conflict on this scale could prove contagious. Saudi Arabia’s importance for global oil production is well understood and, perhaps to a lesser extent, so is Qatar’s lead in liquefied natural gas (LNG). Both have become increasingly important globally since Russia’s invasion of Ukraine led to sanctions being imposed on exports of Russian oil and gas.

What is less well understood is how GIF aims to reflect attempts by the Gulf Co-operation Council (GCC) - a group comprised of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE - to reduce their dependence on fossil fuels.

Anderson Whamond, chair of GIF, told me: “Oil and gas certainly underpin the prosperity of the region but efforts to diversify economies away from relying on hydrocarbons are bearing fruit.

“The Israel-Hamas war has made markets in the wider Gulf nervous. The Saudi stock exchange is back to close where it started the year.

“However, Saudi and Qatar may find themselves in the role of intermediaries in any peace process - however distant that may seem today.

“Saudi’s interconnectedness with the global economy is developing fast – forging sporting, political and economic ties across the geopolitical landscape.”

• Ian Cowie: why it’s never too soon to take a profit
• Benstead on Bonds: the bond crash has broken records – is it finally time to buy?
• Fund managers’ biggest concerns and reasons to be cheerful in uncertain times

The FIFA World Cup Qatar in 2022 attracted mixed reviews and recent speculation that it is a “done deal” that the 2034 football finals will be held in Saudi Arabia is for some even more controversial with war in Gaza. Everything has been thrown into doubt, even efforts to develop renewable energy.

Whamond explained: “There is a trend of non-hydrocarbon growth in other GCC states such as Qatar, which has also been opening up its economy by raising foreign ownership limits. While the GCC makes up 7% of the Morgan Stanley Capital International (MSCI) Emerging Markets (EM) index today, GCC is 11% of the MSCI EM Financials index.

“Conscious of the limited lifespan of hydrocarbon industries, Gulf states are working on technology for the clean energy transition. The UAE is set to invest over $160 billion on clean and renewable energy, working towards its net-zero 2050 target. As well as funding a multi-billion-dollar clean energy joint venture with the UK’s Rolls-Royce (LSE:RR.) it is also planning the world’s largest blue ammonia facility, a future alternative to LNG.”

All those high hopes might be dashed by the war in Gaza. While it is easy to see how the violence started, it is difficult to know where it will end.

Let’s hope for everyone’s sake - Arabs and Israelis - that they can revive plans for a more peaceful and prosperous future. If that happens, I might well buy back into GIF again.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.