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Barings identifies strong growth in MENA region

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The Middle East and North Africa (MENA) region represents excellent opportunities for investors who understand the nuances of local markets and the strong, growth-oriented companies found across the region.

In particular, companies that offer exposure to structural growth sectors such as private healthcare and firms engaged in the provision of education and training as well as consumption represent strong opportunities, forecasts Baring Asset Management (Barings). For instance, with Gulf state governments seeking ‘first world’ healthcare but with a prevalence of chronic diseases needing specialist care on the rise, healthcare spending per capita is set to increase across the market and governments have encouraged growth in the private insurance sector to ease their burden.
 
The Baring MENA Fund celebrated its fifth anniversary in March, and over that period has returned 52.8 per cent on a cumulative basis, equivalent to a compound annual growth rate of 8.85 per cent. Over the 12-month period to December 2014, the fund returned 13 per cent, outperforming its performance comparator, which returned 8.9 per cent over the same period.

Dr Ghadir Abu Leil-Cooper, Head of the EMEA and Global Frontier Markets Equity Team and Manager of the Baring MENA Fund, says: “Over the past five years we’ve seen significant political and demographic changes across the MENA region. The start of this year has seen oil prices reach lows not seen since 2009 but we expect that the resulting increase in equity market volatility will be temporary. Continued investment in key areas should help sustain domestic economic activity, which in turn should benefit companies including Gulf Co-operation Council (GCC) markets. By concentrating on the sustainable growth forecast of individual companies and not being swayed by headline risk, we have managed to generate significant outperformance.
 
“Saudi Arabia opening its stock market to international investors in June this year is an important development and one we strongly support as this will allow companies to have wider access to markets and investment opportunities. As the population keeps growing and demand for jobs increases, a thriving capital market with good corporate governance should provide the foundation for a more diversified balanced economy, far less dependent on the oil price.
 
Diversification away from the oil sector is something that most MENA economies are aiming for. There is already a balance between oil exporting and oil importing countries within MENA but the importance of becoming less dependent on oil is clear, especially given the recent moves in the oil price. Dubai becoming a successful tourism and services hub is one such example. Another example is the increase in religious tourism in Saudi Arabia – Barings has identified companies where tourism should drive earnings growth in the medium term, as Saudi expands the airport and Mecca infrastructure and the government increases the annual quota of religious visas.
 
Dr Ghadir Abu Leil-Cooper, Manager of the Baring MENA Fund, says: “We continue to see highly favourable demographic profiles for the MENA region. It is therefore no surprise that we are finding many opportunities such as in construction.
 
“We look for companies with committed management teams, compelling strategies and where investment returns are supported by strong balance sheets, reasonable valuations and strong franchises. We continue to see many such opportunities within the MENA region.”
 

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