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What do you say to an investor who has just seen a significant chunk of his equity investment this year drain away? "It's true that the best time to invest in the market is the worst time to raise funds," says Joe Kawkabani, head of equity asset management at Algebra Capital, which recently launched a new fund with Franklin Templeton Investments.
Only a sixth of the funds tracked by Zawya are in the green this year, with an overwhelming majority sinking in red ink. Yet the appetite of investment fund managers to source new funding has not disappeared.
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Earlier in November, Dutch bank ING Investment Bank launched ING (L) Invest Middle East and North Africa Fund at a time when some of the region's most liquid markets are down by more than 60%.
"We aim to have assets under management of between $500mn to $1 billion," says Fadi Al Said, head of equity for the Middle East at ING Investment Management, although he admits that most of the funds will come in early 2009 as some clients have put a freeze on investments till the end of the year.
Clearly, these are not ordinary corrections in the regional stock market and it is not surprising that even most moneyed investors are counting their losses and licking their wounds. "There is a wait-and-see approach as nobody wants to catch a falling dagger," says Kawkabani. "Investors want to cross the big psychological barrier of this year before taking decisions."
Led by global markets, investor sentiment in the region has collapsed, writes Credit Suisse in a gloomy report on the crisis that has engulfed regional markets. "Driven initially by foreign institutional investors deleveraging, local entities have also unwound positions. Retail investors have also joined the wave but as in previous occasions, they have lagged behind and suffered from margins calls and a depleting capital base."
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There is also anecdotal evidence of capitulation across the GCC markets as investors unwind their levered positions and succumb to the consensus that earnings will weaken substantially next year, says Tarek Fadlallah, Executive Director at Nomura Investment Bank, in his recent report Nowhere To Hide. "The GCC markets have lost a combined trillion dollars in market capitalization
from their individual peaks and aggregate valuations have become more alluring."
Despite the market's travails, we may be close to a bottom. Certainly some fund managers are taking the long view. "The MENA region is expected to grow at a strong pace in the coming years due to the rise in massive infrastructure spending and the emergence of business sectors, such as logistics, banking, construction, petrochemicals and fertilizers," says Kawkabani.
Meanwhile, Kuwait's Global Investment House has secured licences to launch three new funds, while hedge fund manager Brevan Howard Offshore Management has listed two funds on Nasdaq Dubai exchange, showing that many investment houses are braving the storm and not allowing current market sentiment to derail their long-term plans.
As Fadallah writes: "Market excesses correct - eventually and always.
It's not doom and gloom - just a new paradigm."
-Yadullah Ijtehadi
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