Euro troubles spill into regional markets

Hopes that emerging markets can de-couple from their developed counterparts have been disappointed as “risk-off” investors retreat to their domestic base.

The political and economic turmoil across the Middle East and North Africa during 2011 has definitely impacted foreign investment, but domestic investors are able to see through the uncertainty to the opportunity, say local fund managers.

A report from ING Investment Management notes that listed stocks are offering unprecedented value, and that changes underway will provide a firm foundation for the future economic growth that is eluding most developed markets.

The bare statistics on redemptions and flows also conceal a more complex picture where investors are having to meet margin calls and other cash requirements by liquidating non core investments, rather than selling stocks because they no longer believe in them.

Fadi Al Said, head of Investments at ING IM, expects the region’s markets to follow a similar path to those in Eastern Europe after the collapse of communism. They endured volatility early on, but over the medium to longer term enjoyed strong growth.

ING IM set up a Middle East office in Dubai in 2008. “We were the first global asset manager to have an investment kitchen there,” says Fadi Al Said. “We have a strong local team and a consistent range of local products.” In December 2008, he launched a long-only MENA equity fund investing in 12 markets in the Levant and GCC region.

One of the region’s most experienced managers, he joined ING IM from NBD Investment Bank, where he managed two flagship funds (MENA equities and GCC balanced). He was previously head of the Asset Management division at Noor Capital. At Damac Invest he co- managed a multi-billion Dirham portfolio invested in the MENA region, and at Al Jazira Bank in Saudi Arabia he was head of research.

He says launching a MENA fund in 2008 was testing. “It was a hard time to launch but an excellent time to invest,” he notes. The AA-rated fund reached $120m at its peak but has suffered as European investors retrenched, their place taken by regional sovereign wealth funds. “They are extremely demanding, so we are very proud of that,” he adds.

He markets to regional banks, platforms and clients, and observes a blurring of the traditional distinction between retail and institutional clients. “The retail investor money is channelled through the institutions, and there are many private offices restructuring their portfolios and outsourcing mandates to funds, which give them a wider product range than in-house.”

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