Foreign & Colonial (F&C) Emerging Middle East Fund will increase the allocation of funds to Arab markets in the first quarter of 1996, when it expects to be fully invested. The fund was launched at the end of 1994 having raised $42 million, and originally planned to be invested by the end of 1995. However, the timetable has been delayed because the speed at which investment has been possible in several key markets has been slower than expected.

At the end of October, Turkey and Israel together accounted for more than 45 per cent of the allocation of funds, while Egypt and Morocco accounted for a little more than 40 per cent. Oman accounted for only 2 per cent, and Jordan and Tunisia had yet to attract any investment.

‘We’re steadily going to decrease our exposure to Turkey and Israel,’ says Omar Masri, manager of the fund. ‘We will expand our Arab part significantly, especially in the first quarter of 1996.’ By then, he says, obstacles preventing investment in several Arab markets will be resolved.

In Oman, the level of investment has been limited because of inadequate custodial arrangements for international investors. In addition, many of the attractive stocks have already reached the limit of foreign investment. At present, F&C only has exposure to the market through the Oryx Fund.

In Jordan, the fund is waiting for the prime minister to approve a new bylaw that will relax the regulations governing foreign investors access to the market. ‘Definitely Jordan has to be our number one priority at this point,’ says Masri. In Tunisia, Masri says he is looking closely at two stocks, including one soon to be privatised. ‘In our opinion the market is still too rich at the moment,’ he says.

The share price of the fund has suffered since the launch. It began trading at $15 and is now trading at $11. However, Masri says the price does not reflect the net asset value which is now only $0.01 lower than at the launch when it was $13.46. ‘So overall, in terms of performance given that the markets are either down or flat this year we performed well. Again, in 1996 we will see a quite different year,’ says Masri. F&C is due to release its report covering the first year of the fund by mid-December.