Foreign funds increase exposure to the region by $1bn

14 September 2008
Foreign investment funds have boosted their exposure to the largest stock markets in the Middle East and North Africa by more than $1bn in the first seven months of the year, following the downturn in Western bourses.

Mutual funds, which often invest for the long term, bolstered their investments in Arab stock markets by $1.1bn between the beginning of the year and the end of July, according to Emerging Portfolio Fund Research (EPFR), a US-based consultant that monitors the flow of funds between emerging markets.

At the end of July, mutual funds had $3.8bn invested in regional stock markets, the latest data available to EPFR shows.

Fahd Iqbal, GCC strategist for Egyptian investment bank EFG-Hermes, says there are two explanations for increased foreign interest in the region.

“Number one is reallocation from global emerging market investors who have come to realise this is a region where they need to be overweight,” says Iqbal.

“At the end of 2007, there was a discrepancy between the value of these markets and the earnings they were producing.”
The second reason is that banks in the region, and in Western financial centres, launched Middle East-specific and country-dedicated funds in the first half of the year.

“A lot of funds have been set up that are GCC-specific or Middle East and North Africa (Mena)-specific,” says Iqbal. “That is having an impact. If you have a Mena fund being set up and it is building its positions, that will create net inflows into the region.”

In addition to the $3.8bn in assets invested in Mena funds at the end of July, EPFR tracks Europe, Middle East and Africa (Emea) funds, and Middle East regional funds limited to the GCC and Levant markets.

Emea funds increased their holdings in listed companies by $531m in the first seven months of the year, giving them assets of $2bn at the end of July. Middle East regional funds invested an additional $670.5m in the region in the same seven months, leaving them with $4.2bn.

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