Hopes that emerging markets can de-couple from their developed counterparts have been disappointed as “risk-off” investors retreat to their domestic base.
The market capitalisation of the MENA region is over $800bn. There are some 1,200 companies to invest in but only around 116 are covered by third party research. So although there are some hidden gems for investors, they can be difficult to find. “That is why we believe that if you are going to invest here, you need a very active management approach that is based on fundamental research supported by a local presence.”
The region has one of the lowest correlations with developed and other emerging markets, providing greater diversification opportunities. There is increased corporate governance and company disclosure, and a growing level of M&A activity strengthening company balance sheets.
After the crash in Dubai in 2008 and the Arab Spring this year, the region is outperforming in dollar terms. “Dubai is not mature – there is always more to be done, to be learned. But expertise has improved dramatically in recent years, there has been a migration of talent inwards. The politics is a positive, the demographic profile is supportive long term, and there are amazing internal surpluses which will be deployed to develop investment plans,” he says.
The structural underinvestment of the last 15 years is being reversed. “There is a social necessity to develop infrastructure and markets. The political element was the only component missing for many years, and that is now in place.”