The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
Baring Asset Management says it plans to launch its own Mena fund, making it the latest to join the bandwagon. The Baring Mena Fund will be managed by Ghadir Abu Leil-Cooper, head of the fund houseÆs emerging Europe, Middle East and Africa equities team.
The Mena region has become a new target for investors looking for themes that will deliver alpha. The regionÆs biggest draw is the oil-rich countries of the Gulf Cooperation Council (GCC), where surpluses from oil receipts have been feeding economic growth and development for many years. The region is also considered an ideal portfolio diversifier because it has been largely uncorrelated with the rest of the worldÆs markets, including other emerging markets.
Barings has a long track record of delivering returns with its Eastern Europe, Middle East and Africa (EMEA) fund and the yet-to-be launched Mena portfolio is seen as a natural extension of its capabilities.
The Mena Fund will employ an actively managed strategy using a bottom-up growth at a reasonable price investment philosophy. The number of holdings in the fund is expected to be 40 to 60. It will be benchmarked against the MSCI Arabian Markets ex-Saudi Arabia index.
ôThe investment rationale for investing in the Mena region is a strong and sustainable one,ö says London-based Abu Leil-Cooper. ôIn our view, economic growth rates are likely to increase by more than 5% a year for the next few years driven by high oil and gas prices, infrastructure spend and consumption. Growth has a lower correlation with the rest of the world, and should continue to remain strong despite an expected US slowdown.ö
With rich oil and gas resources, the Mena region has benefited significantly from the rise in global energy prices in recent years. This is set to continue as energy demand from China and other emerging economies is likely to persist, particularly as rapid economic development of the Brazil, Russia, India, China (Bric) countries puts pressure on resources while supply remains tight, Abu Leil-Cooper says.
The Mena regionÆs GDP growth is increasingly being driven by more diversified sources, such as tourism and construction, where Dubai is the obvious example. To support the development of the region there has been an increase in domestic infrastructure spending and Barings expects infrastructure spending within Mena countries to continue to grow, further fuelling GDP growth. Over the next decade, Barings expects infrastructure investment in the area to reach $1 trillion.
There are also large and increasing foreign exchange reserves and the Mena economies are not dependent on external capital to finance growth. The financial markets, in the meantime, are undergoing a transformation and investment restrictions have been relaxed allowing foreign ownership of listed stocks to increase, improving liquidity and interest from international investors.
Domestic consumer spending is also taking off as the wealth effect of the oil and gas industry filters down through the populations. The financial outlook for the region remains strong, as these economies on the whole are running a twin current account and budget surplus.
ôThe Mena region still offers value, with attractive bottom-up investment opportunities and reasonable share price valuations,ö Abu Leil-Cooper says.
Among the GCC countries (comprised of Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates), Abu Leil-Cooper picks out UAE as an example of the investment potential of the area. The UAE has a high GDP per capita of $42,275 and strong economic growth, which rose by 8% in 2007 and is forecast to increase by 6.4% this year. This is largely due to the countryÆs rich hydrocarbon reserves, one of the largest in the world. Growth is also being driven by investment in the non-oil sector. The increase in immigration to the region has led to a demand for more banking services, stimulating growth in the financial sector as well as a construction boom.
In North Africa, Abu Leil-Cooper highlights the opportunities to be found in Egypt. Similar to the GCC region, economic growth has been fuelled by strong demand from construction and tourism as well as the spill-over of oil riches in the Gulf being invested in Egypt. EgyptÆs market is one of the most diversified with opportunities across a wide selection of sectors such as pharmaceuticals, fertilizers, banking and construction. Barings expects the young and rapidly growing population, with 52 million people under the age of 30, to continue to drive the need for investment to accommodate their consumption needs and job requirements.
Meanwhile, the Baring Mena Fund û which is still subject to regulatory approval û will be an Open Ended Investment Company, domiciled in Ireland. The annual management fee is 1.5% and the performance fee is 15%, calculated on outperformance of the MSCI Arabian Markets ex-Saudi Arabia index and subject to a high watermark. Minimum investment will be ú5,000.
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