Baring MENA Fund increases by 18.8% year-to-date in US dollar terms
While political events in countries such as Syria and Egypt continue to attract headlines, equity markets in the Middle East and North Africa (MENA) region have proven remarkably resilient in recent months according to Baring Asset Management ("Barings"), the international investment firm. As at 18th September, the MSCI Arabian Markets ex Saudi Arabia Index had returned 7.3% in US dollar terms year-to-date, significantly ahead of the 5% rise in the wider MSCI Frontier Markets Index over the same period*.
Commenting on the investment case for MENA, Ghadir Abu Leil-Cooper, Head of EMEA Equities said, "The developing nature of regional equity markets means that analyst coverage of the MENA region isn't always as comprehensive as elsewhere and we believe this provides significant opportunities to invest in companies which are undervalued and unrecognised by the market.
She continues, "Even throughout the recent period of political uncertainty, a combination of top-down asset allocation and bottom-up company research has thrown up some attractive investment opportunities, with the Baring MENA Fund rising by 18.8% in US dollar terms in the year-to-date. This is not only significantly ahead of the MSCI Arabian Markets ex Saudi Arabia Index, but also surpasses returns generated by both emerging and global equities*."
Economically, MENA countries continue to deliver strong and sustainable growth. The region has a highly favourable demographic profile - around one-third of people in the region are under the age of 15 - and this should underpin long-term demand for housing, health care and consumer goods.
Ghadir continued, "Our exposure to MENA's young consumers is principally through the Financials sector. Compared to their counterparts in the developed world and other global emerging markets, consumers are underleveraged and we believe regional banks have the potential to rapidly increase their services in areas such as personal banking, mortgages and insurance products."
Elsewhere, resource-rich economies continue to benefit from an elevated oil price environment, meaning that countries such as Qatar and Saudi Arabia are able to invest heavily in infrastructure assets. As the infrastructure build-out gathers momentum - most countries in the region have announced plans to build new hospitals, airports and desalination and electricity plants - Barings maintains selected exposure to beneficiaries of rising infrastructure spending across the region.
Ghadir concluded, "At the company level, it is important to recognise that MENA is home to a number of global companies such as Dubai-based port operator DP World. These firms continue to gain recognition on the global stage, grow market share and deliver impressive operational results, notwithstanding the uncertain outlook for global growth.
"Looking ahead, we expect political tensions to remain elevated in certain countries over the short-term. However, the investment case remains attractive and we shall continue to view any periods of volatility as an opportunity to acquire companies with good long-term growth prospects at reasonable valuations."
*Source: Barings, Morningstar, Thomson Reuters Datastream, as at 18th September 2012, in US dollar terms.
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