It's a difficult region to understand because you're covering the Middle East
North Africa and the Levant and there's a lot of complexities or at least
perceived geopolitical risks that go into this.
Well it's not one region, it's really as you say three regions and the first thing you need to make a decision
about is where do you think the price of oil is going because that determines
whether you're focused on the Gulf or you're focused on the oil importers
which are Morocco Tunisia Egypt Jordan Lebanon Palestine so that's the first
macro decision you need to make and if you get that wrong then you're in
trouble but if you get it right then you do well.
And so how do you make the decision as to why wouldn't I just invest in oil and be long oil and
levered oil which is liquid it's easy to trade versus going into something that's
perhaps more opaque and trying to go into equities in these different regions
I mean it's much more complex than oil the Gulf markets which are all dependent
in the past they've they've lagged oil but they're basically driven by
government spending so unlike in the West where government or the public
sector represents maybe 10-20 percent of GDP in the Gulf it's more like 60 so
these governments get their revenue from oil but also they get their revenue from
their sovereign wealth fund so Kuwait and Abu Dhabi because they've had their
they've been saving for so long they probably make as much from their savings
as they do from selling oil so it's a bit more complex it's another reason
to to look at the stocks is because the this is probably one of the few
remaining areas in the world which isn't well researched sure if you look at the
top 20 names in the region they're pretty well researched so National
Bank of Kuwait, National commercial bank in Saudi Arabia you know those are
covered by Merrill Lynch, Morgan Stanley, Goldman Sachs,
HSBC, you name it, plus all the regional and local guys so if you if you
go one layer below that there are many companies that have maybe one two
analysts or zero analysts and if you do your own homework you can make some
money what else do you like or what are the other themes and how do you think
about them in the region right now our largest country exposure is in Morocco
and and it's fairly simple why Morocco invested 40 percent of its GDP in
building its infrastructure for eight years running which is higher than
anywhere else in the world other than China and the Asian Tigers so higher
than far higher than any of the Western countries or any of the Middle Eastern
or African or any or Latin America and if you invest wisely you reap the
rewards eventually and if you go drive around Morocco you'll see that the
highway system is second to none and the railroads are excellent the ports are
fantastic and and because of that they've been able to attract a lot of
European companies namely the automobile manufacturers to build cars in Morocco
and ship them out so initially when the iron curtain came down most of the
Europeans thought ok let's go to Eastern Europe because cheaper but now wages
have gone up in those parts and and you know it's cheaper to build them in
Morocco so so that's one big industry that has grown in Morocco yeah it feels
like it could be some sort of play like Mexico in the US or you have the
productive base into the developed countries just you know an
interconnection right there so yes you've got Morocco directly into
into Europe exactly but there's more than that the last flight I took to
Casablanca was in October and the flight was packed and 80 percent of the
passengers were transiting in Casablanca and going to
in Africa so there have been huge efforts to open markets in sub-saharan
Africa for Moroccan companies and the King well I think is one of the bests
rulers in terms of economic governance in the whole Arab world
I'd say him in the sheikh of Dubai and the two top rulers with the rest being
either mediocre or poor so the King has gone on countless trips and not just to
francophone was West Africa but even to East Africa and now all the big Moroccan
banks have significant operations in sub-saharan Africa and Morocco telecom
is very big in sub-saharan Africa and the second tier companies are following
and the problem in Morocco is valuations so if you look at it superficially in
the top say 10 names all trade at mid to upper teens so it's not cheap and that's
because of exchange controls but if you look at the second tier companies you
find a lot of value and our portfolio as a whole trades at about ten and a half
times earnings and there are only 16 long positions and
two shorts and the long book trades at about ten and a half times earnings with
growth of about 12% 15% and to me that's important because I look at investing is
a bit like walking a tightrope the higher the valuations the higher the
rope is from the floor so if you fall you're going to hurt yourself
if it's high and also the the higher the dividend yield the the bigger the
cushion on the floor or mattress nice so if you do fall it doesn't hurt as much
so if you buy something at 20 times earnings anything goes wrong this
thing's going to trade at 10 times earnings and you're gonna really get
hurt but if you buy it at 8-10 you don't have that much to fall if you get it wrong.