HONG KONG, (Reuters) – Franklin Resources Inc said on Monday it was launching a new fund investing in the Middle East and North Africa, joining a growing number of money managers offering products geared to the energy rich region.
The Franklin MENA Fund will invest in markets including Saudi Arabia, United Arab Emirates, Kuwait, Qatar, Bahrain, Oman, Egypt, Jordan and Morocco.
San Mateo, California-based Franklin, which operates as Franklin Templeton, said the fund will be managed by Stephen Dover but sub-advised by Algebra Capital Ltd, a Dubai-based fund manager in which Franklin acquired a 25 percent stake last year.
Franklin is one of the largest publicly traded U.S. mutual fund managers with more than $623 billion in assets under management at the end of May.
Algebra Chief Executive Ziad Makkawi told a media briefing that while high energy prices were positive for the region, more important was the willingness of governments to invest those oil revenues locally.
“This is the single most important driver of growth today, the money that’s being spent on infrastructure, on schools, on diversification into other energy intensive industries, into services and so on,” he said.
“This is what really makes us confident that this is not a short-term blip. This is a fundamental and structural change”.
While global stock markets have been hammered by concerns about slowing U.S. growth and high inflation, many Gulf markets have been boosted by soaring energy prices, with Kuwait’s main index ending at a record close on Monday.
Algebra’s managing director of sales and distribution, Daniel Smaller, estimated that stocks in the region were trading at about 12 times earnings, with those earnings growing 23-25 percent annually.
He said this meant it compared favourably with BRIC funds.
Citi Investment Research has estimated Chinese companies trade at almost 16 times 2008 earnings and Indian companies at about 17 times.
“It is still cheap. This is the next BRIC, in many, many ways, and you’re not paying for it,” Smaller said. “Most important, it’s not correlated to what’s going on in the rest of the world.”
The fund executives said that while there was geopolitical risk in the region, probably a greater threat were high inflation rates. But they said the fund would favour those companies able to pass through rising costs to their customers.
A version of the fund was launched in South Korea earlier this year.
The fund launched on Monday uses the open-ended SICAV legal structure common in Europe that qualifies it for sales in multiple markets. In addition to Hong Kong, the fund will be rolled out to investors in the Middle East and Britain.
A Franklin spokeswoman declined to comment on how much the new fund was expected to raise.
Rival fund houses Fidelity and Schroders launched Middle East- and Africa-focused funds in Hong Kong last August, making the case that even for a region rich in emerging market opportunities, Asian investors would benefit from the diversification.
Makkawi and Smaller noted that their fund had a more concentrated geographic focus, compared with similar funds that invest as far afield as South Africa and Eastern Europe.