The $60 million, closed-end Foreign & Colonial Emerging Middle East Fund, launched in New York, was heavily oversubscribed at its close on 12 October. With investors showing a growing appetite for Arab stocks, several competing funds are expected to follow, including an Arab markets fund planned by the London-based Fleming Investment Management.
Stock in the London-based Foreign & Colonial fund were to be allocated to investors on 13 October. ‘The demand is mainly coming from sophisticated emerging markets managers and big institutions,’ Foreign & Colonial Emerging Markets’ head of marketing Peter Douglas said on 12 October.
Investors are looking at the Middle East for strategic purposes, Douglas said. This is to diversify their emerging markets portfolios and to benefit from the above-average yields forecast from Arab markets over the next year.
Foreign & Colonial will invest in the stock exchanges of Bahrain, Egypt, Jordan, Morocco, Oman and Tunisia. Up to 35 per cent is to be invested in Turkey and Israel, and some investment in fixed-income instruments is also envisaged. The underwriters are Japan’s Nomura Securities and the US’ Paine Webber, with the Inter-national Finance Corporation (IFC) acting as structuring adviser and taking 500,000 shares (MEED 7:10:94).
Marketing in Hong Kong alone produced large-scale commitments which could absorb much of the fund, a core investor says. Whether the final amount can be increased depends on whether there is sufficient liquidity in target markets.
‘Other regional funds are being set up, so we want to allocate before they get in to chase the stock,’ Douglas said.
A decision about whether to launch the $50 million Fleming Arab Countries Fund was expected as MEED went to press. Fleming Investment Management was expected to create a closed-end Arab markets fund concentrating on Jordan, Egypt, Tunisia and Morocco, with some investment in Bahrain, Kuwait, Oman and Lebanon. If given the go-ahead, this fund will be launched by the end of November with a listing in London.
Two US fund managers are also understood to be planning Middle East funds, pending Securities & Exchange Commission approval.
In the Gulf, fund managers have been marketing other emerging markets funds. The Bahrain office of Robert Fleming Holdings has been selling the Jardine Fleming Asian Emerging Markets Trust, investing in a portfolio of Asian equities including those quoted on the Pakistan stock exchange.