Gulf investors go for guaranteed funds

14 July 1995

Funds launched by Manama-based banks are meeting a mixed response from Gulf investors this summer, and those investing outside the region, with capital guaranteed, are proving the most popular. But investment vehicles with greater risk, and those investing in local equities are on the increase, including the first fund to give foreigners the chance to invest in the Bahrain Stock Exchange.

National Bank of Bahrain (NBB) has extended the deadline for subscribers to the NBB Guaranteed Fund to 15 July, after being heavily oversubscribed on the original closing date at the start of July. The bank planned to raise $30 million to be invested in financial futures, foreign exchange and commodities trading in developed markets. However, the bank says subscriptions now exceed $50 million, and the final closing figure could go higher still.

The bank attributes the response to the strong performance of previous guaranteed funds it has launched, but says many investors are encouraged because the capital is guaranteed. The latest launch matures in July 2000 and expects investors to receive returns of 15 per cent a year.

Bank of Bahrain & Kuwait is following suit, and launched the Guaranteed Return Fund on 8 July. The fund will mature in five years, and guarantees investors a return of 10 per cent on their investment at maturity.

'At the moment, investors in this region tend to be risk averse,' said a Bahrain-based capital markets manager. 'The market is now in capital guaranteed products. But its not going to be there all the time.'

One indication of the changing appetite in the market is the issue of locally listed currency warrants by the Bahrain-based operation of Citibank. The banks says investors took up a substantial portion of the $50 million worth of warrants issued, which offer investors the chance to capitalise on fluctuations in the Deutschmark/ dollar exchange rate.

This is the first listed stock on the Manama bourse with a derivative structure, and the bank plans two new warrant issues in September or October. These will track fluctuations in the yen and sterling rates against the dollar, and each issue is expected to be worth about $50 million.

The local market is also receiving more attention from fund managers, despite the poor performance of the stock exchange this year. The BSE index is down about 15 per cent since the start of the year. Bahrain International Bank (BIB) reported an encouraging response to its Dilmun Fund, through which foreign investors can invest in local stocks. BIB raised BD 3.7 million ($9.8 million). The bank expected to raise between BD 2.5 million- 10 million ($6.6 million-26 million).

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