Experience talks in Africa and the Middle East

Barings Asset Management has become the latest fund management company to identify significant investment potential in North Africa and the Middle East. “In Barings’ view, the Middle East and North Africa offer among the best investment opportunities worldwide,” the company said as it launched the Baring MENA fund, a Dublin-domiciled OEIC that targets ‘growth at a reasonable price’.

According to Barings, recent volatility in the region means now is an ideal moment to exploit low valuations. Other factors augmenting the region’s attractions for investors include its young and growing population, ongoing infrastructure spend and an abundance of raw materials.

However, the manager of the new Barings fund, Ghadir Abu Leil-Cooper, is quick to point out that careful stock picking is required. Her fund will invest in between 20 and 50 stocks in the region and will take the MSCI Arabian Markets ex Saudi Arabia Index as its benchmark.

“The MENA region combines a number of important factors that mitigate in favour of economic growth and strong returns,” says Leil-Cooper. “Nonetheless, investors should understand that experience and active management are needed to achieve high returns.”

To support this statement, Leil-Cooper quotes a scary statistic. An analysis of the 32 MENA funds currently on the market shows that annual returns varied rather wildly between 75.6% and -6.6%.

The Baring MENA fund is part of an expanding range of products investing in the Middle East and Africa available to European investors. The Baring fund invests only in North Africa, but other products now offer investors access to sub-Saharan African markets as well.

The potential gains can be huge. In a weekly market commentary issued last week, Silk Invest, a specialist in African and Middle Eastern investment, noted that the Nigerian stock market had risen by more than 19% so far this year.

“At current levels, it is trading at only 37% of its highs, achieved in May 2008,” said Baldwin Berges, a managing director at Silk Invest. “We continue to believe that these valuations remain too low and see considerable upside for this market.”

Nice work if you can get it, but sadly you can’t get it just by trying; you need experience and connections. We all remember the ignominious winding-up of the New Start Heart of Africa fund – managed not from Casablanca or Nairobi, but London.

Leil-Cooper’s remarks highlight the potential dangers to investors of going into these markets with anyone other than a very highly experienced manager with superb contacts on the grounds. Pity the poor investors in the -6.6% fund at the bottom of the not very large MENA pile.