International investors are showing an active interest in the Middle East as the previously favoured emerging markets of 1993 lose some of their lustre.

North Africa, Egypt and Jordan remain the key areas of interest as investors wait for a way into the Gulf. The two most advanced dedicated GCC country funds at present are in Oman and Kuwait.

Kuwait Investment Company and Kuwait Foreign Trading, Contracting & Investment Company (KFTCIC) are to launch the KD 25 million ($82 million) First Investment Fund in May which will allow resident non-Arabs their first chance to invest in the local stock exchange (MEED 6:5:94, Kuwait).

Oman's $45 million Oryx Fund will give non-GCC investors their first participation in the Muscat stock market (MEED 4:3:94, Oman). The prospectus is due out in May. Locally registered and listed on both the London and Oman stock exchanges, the fund is expected to be up and running by mid- 1994.

In Saudi Arabia, which is still closed to outside investors, Al-Rajhi Banking & Investment Corporation is developing an Islamic equity fund for introduction by the end of 1994, Al-Rajhi says.

International fund managers are already actively exploring Gulf opportunities. Alan Smith, chairman of investment bank Jardine Fleming, visited the Gulf in April and held talks with senior bankers in Saudi Arabia.

Director of Middle East operations for the Fleming group Rupert Wise says, 'All the obvious contenders who are serious emerging market players are looking at the Middle East. We are very interested, as and when it is appropriate.' He added that Fleming is already active in Morocco, Turkey and Jordan through its emerging market investment trust. 'It would be attractive to have a GCC fund, or a regional fund with guidelines to encompass the GCC markets as they open up,' he says. 'We aim to be one of the first through the door.' However, he anticipates that this is at least 18 months away.

Other fund managers are concentrating on the more immediately accessible North African markets and Jordan. The International Investor (TII) in Kuwait is also studying Islamic emerging markets and in particular is looking closely at Egypt, Turkey and Lebanon (MEED 7:1:94).

The UK's Foreign & Colonial Emerging Markets has two regional funds under active development. The company is pursuing several options, including establishing an own label fund in the area, and is looking into managing funds for other institutions, says spokesman Omar M Masri. The planned funds would be in equity and debt, or fixed income funds and in both listed and unquoted securities. The target investors are institutions and possibly high net worth Middle East clients.

The funds would focus at first on North Africa, Egypt and Jordan. Turkey could be included as a secondary market, with Oman also a possibility. The company says it already invests in the four banks in Bahrain which are available to outside investors (MEED 11:2:94). 'The Gulf will eventually open up, they are all in need of extra cash,' says Masri.

Bankers cite several reasons for the accelerating interest in launching funds in the region. The foremost emerging markets of 1992-93 are becoming less fashionable, particularly as US interest rates go up. This has coincided with increased investment opportunities arising from the privatisation and liberalisation of some Middle East economies, particularly in North Africa and Egypt. The peace process has greatly reduced the risk perception of regional investments, bankers say.

However, establishing regional funds may take longer than expected. The International Finance Corporation (IFC) launched its Near Eastern fund to invest in Maghreb and Middle East stock exchanges towards the end of 1993, and it was originally due to close in December. The 10-year closed- end fund, which is to be privately placed, is still in the offering phase (MEED 19:11:93).