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Investors search for new frontiers

Feb 21,2008
Mark Krombas
With ongoing turbulence in the global equity and fund markets eroding profits from even emerging market investments, some local investors are now eyeing “frontier markets.”
Frontier markets, a credit rating given by Standard and Poor’s, are markets which are small and illiquid even by emerging market standards.
While those markets usually refer to countries in the Middle East, Africa, South Asia, Eastern Europe and the Caribbean, the oil-rich Middle East region is leading the pack in Korea as a popular investment spot.
According to the Asset Management Association of Korea, there were six Middle East investment funds available to Koreans as of yesterday, with the amount of money invested in those funds skyrocketing 25 percent in less than two months since the end of last year. It was 734.9 billion won ($776.9 million) yesterday, compared to 585.9 billion won on Dec. 31, 2007.
Those funds are gaining popularity, the fund issuers say, based on the region’s strong growth, which is being fueled by oil money. Some analysts say future growth is expected to be strong in the region, as the countries are planning to spend $1.5 trillion on infrastructure construction projects over the next five years.
“While economic growth rates in other regions are being adjusted downwards, the growth rate in the Middle East and Northern Africa region is being adjusted higher, from 5.8 percent to 6.1 percent for 2008,” said Lee In-gu, an analyst at Daewoo Securities. “The region is expected to carry the momentum for the time being based on strong oil prices.”
Fund managers say the region is also relatively insulated from the global economy. The recent correlation between the S&P Frontier Market Index and the MSCI World Index was only 0.378. Meanwhile, the correlation between the MSCI Emerging Market Index and the MSCI World Index was 0.823. The closer to 1 the correlation is, the more closely the markets follow each other.
In a press briefing in Seoul yesterday, Mark Krombas, a London-based fund manager at Societe Generale Asset Management, a leading global fund management company, also emphasized the low correlation of the Middle East and Northern African (MENA) region to world markets.

“If I were to tell you three main points to make here today about why we recommend investment [in a MENA fund],” Krombas said, “it will be, firstly, very strong economic growth on high oil prices; secondly, an uncorrelated market because foreign ownership in the Middle East is very low; thirdly, very attractive valuation.”
The briefing was to publicize “Frontier Middle-East,” a MENA fund recently introduced in Korea by IBK SG Asset Management, a joint company of the Industrial Bank of Korea and Societe Generale Asset Management.


By Moon Gwang-lip Staff Reporter [joe@joongang.co.kr]


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