LONDON (Reuters) – Oil wealth, population growth and economic reforms make countries in the Middle East and North Africa (MENA) a sure bet for investors seeking returns in frontier markets, Pictet Asset Management said on Tuesday.
The firm’s recently launched equity fund will focus on real estate and construction investments, said Oliver Bell, Pictet’s head of emerging markets.
The fund aims to raise $1 billion (500 million pounds) for investments in Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates as well as North African markets such as Morocco and Tunisia.
“The population of the region is about 300 million, 50 percent under the age of 25…that in itself is driving liberalisation and change because you have got governments needing to reform to provide jobs,” Bell said at a briefing.
Markets in the region see daily trade of about $4 billion a day and have a combined capitalisation of nearly $400 billion. With than 150 public share sales planned next year, the region would offer greater returns than other markets like sub-Saharan Africa, he said.
Bell said pent-up demand for real estate in cities such as Abu Dhabi made listed construction and industrial stocks attractive.
Flush with cash from oil revenues, Gulf Arab states have been able to finance ambitious infrastructure development.
“Within five years, $1 trillion of (infrastructure) investment would be completed. Seventy-five percent of this investment is outside of the oil and gas industry,” Bell said.
But geo-political risks remain in the region.
Iran, Iraq and Lebanon still remain out of bounds for investors while most of the countries in the region are not democracies, Bell noted.
“Obviously, they are monarchies and autocracies. But we think they are good at this stage because if you want to build up new cities and get things done without bureaucracies, command economies can do that.”
These economies also had safeguards to protect investors, including independent central banks, stock market regulators, Bell said.