DUBAI Mark Mobius, one of the world's best-known emerging market investors, will increase his exposure to Saudi Arabia once the largest Gulf Arab state opens its markets to foreigners.
Saudi Arabia, the top OPEC producer, has been considering a wider opening of its market for several years; currently foreigners have only very limited opportunities to invest through indirect ownership and exchange traded funds.
"Right now, we don't have much in Saudi Arabia as the current system opens us up to counterparty risks. Once the market is fully open, we probably will increase our exposure, provided all things remain equal," Mobius, executive chairman of Franklin Templeton's emerging markets group, said in a telephone interview as part of Reuters' Middle East Investment Summit.
With the Gulf state rolling out a $400 billion infrastructure program - the world's biggest stimulus relative to GDP - foreigners are keen on the Saudi stock market and the biggest Arab economy. The bourse .TASI has risen 5.4 percent year-to-date, compared with a 6.2-percent rise for MSCI's emerging market index .MSCIEF.
Saudi's opening of its stock market to foreigners will be gradual, its capital markets regulator has said, although it has not given a date. Analysts and traders expect the move to come next year.
Mobius, who helps oversee $48.2 billion in emerging market funds, expects the opening up of the Saudi exchange to have wider benefits as the event will drive a wave of foreign investment into the Middle East.
Saudi Arabia currently ranks sixth in country weightage for Templeton's $1.1 billion Frontier Markets Fund, lagging behind Nigeria, Kazakhstan, Vietnam and its Gulf peers, Qatar and United Arab Emirates.
The fund manager said institutional investors are increasingly buying into the idea of investing in frontier markets - regions seen as riskier and less developed than emerging markets - in the current low interest rate environment and at a time of low growth in developed markets.
"We now have $2 billion in frontier markets which means that there is a group out there which is interested in generating real alpha," he said. The excess return of a fund relative to the return of the benchmark index is a fund's alpha.
Mobius is bullish on banking, oil and gas, mining and consumer-related stocks within the frontier space.
ARAB SPRING IMPACT
Political uprisings in the region during 2011 will have a positive impact in the long-term, Mobius said.
Governments across the region have announced billions of dollars worth of projects to boost infrastructure and create jobs after protests demanding more open political structures and better standards of living shook several Gulf Arab countries.
"We looked at the Arab spring in a very positive light. We thought that it was going to open up the markets and lead to an expansion of the market capitalization of companies in this region," Mobius said.
That bet seemed to have paid off with Egypt's benchmark stock market index .EGX30 rising 51 percent so far this year - making it among the world's best-performing markets.
Mobius expects the trend to continue as the North African country's Islamist-dominated government embarks on a plan to boost the battered economy.
"In an Islamic style of finance, equity is very important. I think it's going to be very important for them to expand the stock market further," Mobius said.
Templeton's frontier fund counts Egypt's Orascom Telecom Holding ORTE.CA among its top holdings, with a 3.38 percent weightage at end-September.
Mobius is also bullish on real estate in Dubai as the emirate's main sector shows signs of recovery following a 60-percent plunge in prices from its peak in 2008.
"They have a long way to go on the debt issue, but we took a position in the property area when things were in bad shape because we believed that this market is going to recover," Mobius said.
(For other news from Reuters Middle East Investment Summit, click here)
Follow Reuters Summits on Twitter @Reuters_Summits
(Editing by Louise Heavens)