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REUTERS SUMMIT-Templeton Emerging Markets looks to invest more in Egypt

Andrew Torchia and Nadia Saleem
Wednesday, 30 Oct 2013 | 8:22 AM ET

(For other news from the Reuters Middle East Investment Summit, click on http://www.reuters.com/summit/MiddleEast13)

* About $200 mln invested in Egyptian companies

* Doesn't expect many more years of instability in Egypt, North Africa

* Comfortable with economic approach of new Egyptian authorities

* Thinks Gulf market rally may be only half-way done

* Hoping for more subdued, rational boom in Dubai

DUBAI, Oct 30 (Reuters) - Templeton Emerging Markets Group is looking to increase its equities investment in Egypt because it thinks the political environment will stabilise and the government is committed to repairing the economy, the head of the group said.

The assessment coincides with signs that some foreign money may be preparing to return to Egypt after more than two years of political and economic turmoil.

"Egypt is going to pull through and do quite well. Like the rest of the North African countries, it will revert back to a model with more stability," said Mark Mobius, Executive Chairman of Templeton Emerging Markets, which has over $40 billion of assets under management around the world.

He said his group, which had about $200 million invested in Egyptian companies, did not cut its exposure after the country's 2011 revolution and had bought some stocks during the past two years. It is looking for opportunities to add to its portfolio across a range of Egyptian industries, he said.

"From a long-term perspective, what has been happening is quite beneficial," Mobius, speaking in an interview during the Reuters Middle East Investment Summit, said of Egypt's troubled transition to democracy.

Many international funds pulled out after the February 2011 overthrow of President Hosni Mubarak, as political strife brought Egypt's balance of payments and budget close to crises.

The ouster of Islamist President Mohamed Mursi in July this year has not ended political uncertainty; an army-backed interim government, threatened by militant attacks and street protests by Mursi's supporters, will try to write a new constitution and hold elections next year.

But Mobius dismissed suggestions that the Arab Spring uprisings of 2011 had opened up such wide political and sectarian fissures that Egypt and other North African countries faced many more years of instability.

"We don't expect that - we think that there will be positive change within a reasonable period of time. People want to get on with their lives and won't tolerate continued instability."

Mobius said Templeton had been in contact with Egyptian economic officials since Mursi was overthrown and felt "quite comfortable" with their approach towards restoring investor confidence and rebuilding financial markets.

Templeton would be worried if there were signs of an anti-market shift in economic policy like that seen in Venezuela over the past 15 years, with nationalisations and foreign exchange controls. But that is not happening, he said.

A key development was the decision in July by Saudi Arabia, the United Arab Emirates and Kuwait to provide Cairo with $12 billion in aid. This means Egypt has wealthy backers who see an interest in keeping it afloat economically, Mobius said.

Large amounts of Western money may only start returning to Egypt when the government eventually reaches some kind of accommodation with Mursi's Muslim Brotherhood, he added.

So far there are few signs of such an accommodation, but a Reuters survey of 16 leading Middle East-focused funds last month showed tentative signs of reviving confidence in Egypt.

Thirty-eight percent said they expected to increase their equity allocation to Egypt over the next three months, while 19 percent said they would probably reduce it.

Egypt's stock market is up 36 percent from its June low, but still 16 percent below its pre-revolution peak.

GULF

Templeton Emerging Markets, which is part of Franklin Templeton Investments, also believes Gulf stock markets have further to rise as they recover from the global financial crisis, Mobius said.

Dubai's stock market, rebounding from the bursting of a real estate bubble in 2008-2010, is up 79 percent so far this year, Kuwait is up 34 percent and Saudi Arabia has gained 18 percent.

"We think we're mid-way to the upside - we think there's quite a lot to go, barring any major change in the political or economic environment."

Templeton Emerging Markets continued buying stocks in Dubai during its real estate crash and as property prices recover this year, it hopes the current boom will prove "more subdued and rational", Mobius said.

He said his group had about $500 million invested in Saudi Arabian equities, channelled through swaps arranged by banks as direct foreign investment in that market is not allowed, plus about $400 million each in Qatar and the United Arab Emirates.

Those amounts suggest Templeton Emerging Markets may be more overweight on the Gulf than many international funds. Analysts estimate Qatar will obtain a weighting of about 0.45 percentage point in MSCI's emerging markets index when it is upgraded to emerging status next May, while the UAE will have a slightly smaller weighting.

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(Editing by Anthony Barker)