Fund managers turning to the Middle East

Last year, the handful of BRIC-themed (Brazil, Russia, India, China) funds, the asset management industry's flavour of the year, all fell short of their hype. And their NAVs (net asset values) show that.

"BRIC is the sort of theme private bankers and investment advisers would have advised their clients eight years ago," Tanawat Roongtanapirom, fund manager with Kasikorn Asset Management, said yesterday. "For eight years, BRIC investment would have eight times the investment."

But probably not anymore, so the caravan of fund managers has found its next oasis.

IPO-ing today, the K-MENA (by K-Asset) Fund, focusing on the Middle East and North Africa, will be the first of its kind in the Far East, said Wiwan Tharahirunchote, executive vice chairman of Kasset. It beats even emerging market specialist Franklin Templeton, whose MENA fund will be launched in a matter of months.

The fund of funds, in collaboration with EFG Private Bank, will scout for specialist funds to invest in Middle Eastern and North African stocks. MENA's market capitalisation was only US$132 billion (Bt4.3 trillion) five years ago. This year it's $1.4 trillion, but still small compared to the relative wealth in the region, Wiwan said.

The newness of the market - some of the countries in MENA have yet to be included in the MSCI index - beckons for a bottoms-up approach, hence, the headroom of up to about 20 funds the managers would like to include. So besides weighing management style and track records, fund managers must also go on regular company visits.

Since September 11, petrodollars have been flowing back to the region, manifested by the infrastructure projects mushrooming there. And with the oil price rising at the current rate, there will be more money flowing in.

While all regions have had their GDP growth forecasts marked down by the IMF, MENA is the only one to see growth. If all goes well, GDP growth for this year will reach 6.4 per cent, up 30 basis points from last year.

Because of infrastructure shortages, most investment is in building and construction and development, Tanawat said. And the public and private sectors are often working hand-in-hand in developing these projects.

Then there are growing agribusinesses in countries like Israel and Morocco, which will also be included in the fund's portfolio.

The boom in the region will have a knock-on effect on demographics. Population growth was 8 per cent last year, according to Wiwan. This was due to white- and blue-collar workers coming in to fill the labour gap.

But there are also political risks with sporadic strife that sometimes turns into bloodshed. For this reason, K-MENA has avoided Iran and Iraq.