Saudi Arabia's Al-Rajhi Banking & Investment Corporation has launched an Islamic equity fund to invest in Egyptian stocks. The fund is expected to raise $20-25 million from Gulf investors. It will be managed by Al-Rajhi, with the local Hermes Financial Management (HFM) acting as investment adviser.

The launch of the fund is an indication of the interest Gulf investors have in the Egyptian market, which has risen strongly in recent months under the impact of privatisations of state-owned companies. The market has undergone a correction in the last couple of weeks, but is still viewed with enthusiasm by foreign investors in the long term. Al-Rajhi is the largest dedicated Islamic bank in the Middle East and one of the most profitable banks of any description in the region.

The usual stipulations for Islamic funds apply to the Al-Rajhi fund. It will not invest in banks, hotels, tobacco companies or companies which make or sell alcohol. In the case of Egypt, this rules out some of the most heavily-weighted and liquid stocks on the market. However, it does not affect other actively traded sectors like the cement and flour milling industries. HFM says that the fund will also not invest in companies with a high debt-to-equity ratio, without specifying what this would be.