While political events in the region continue to attract headlines, equity markets in the Middle East and North Africa (MENA) region have been remarkably resilient in recent months. The MSCI Arabian Markets had returned 7.3 percent in US dollar terms in year-to-date, which is significantly ahead of the 5.0 percent rise in the wider MSCI Frontier Markets Index over the same period, Baring Asset Management Limited said.
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
Investing in frontier markets such as MENA is clearly not without risk, yet the developing nature of regional equity markets also means that analyst coverage isn't always as comprehensive as elsewhere and Baring believes this provides significant opportunities to invest in companies which are undervalued and unrecognized by the market. 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 percent 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
Economically, MENA countries continue to deliver strong and sustainable growth. The region has a highly favorable demographic profile – around one-third of people in the region are under the age of 15 – that should underpin long-term demand for housing, health care and consumer goods. Baring exposure to MENA's young consumers is principally through the financial 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, mortgage and insurance products."
Most countries in the region have announced plans to build new hospitals, airports and desalination and electricity plants
Elsewhere, resource-rich economies continue to benefit from an elevated oil price environment and this means that countries such as Qatar and Saudi Arabia are able to invest heavily in infrastructure assets, which "we believe is a requisite to supporting economic and population growth. The infrastructure build-out is gathering momentum – most countries in the region have announced plans to build new hospitals, airports and desalination and electricity plants – and we maintain selected exposure to beneficiaries of rising infrastructure spending across the region," said Ghadir Abu Leil-Cooper, Head of EMEA Equities Investment Manager, Baring MENA Fund, Baring Asset Management.
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 the company level, Baring said it is also important to recognize 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," he said.
The Saudi Gazette