Is the Franklin Templeton MENA Fund a buy?
Posted on 17 June 2008 with no comments from readers
You can only sell a fund to retail investors at the peak of any market, so the launch of such a fund is a sell signal. Cynical no doubt but investors do not get rich by being naïve.
Does the new Franklin Templeton investment fund for the Middle East and North African countries fall under this categorization? Oil prices are driving investment in the region, certainly.
But as even the most naïve investor will have noticed, oil prices are up 40 per cent this year to $140 a barrel. Indeed, there have been 28 all-time highs in 2008. And we know from reports of recession in the industrialized world that the consumer nations are feeling the pinch. Is this not oil assuming the characteristics of an investment bubble?
It would have been nice if Franklin Templeton had launched their fund two years ago. Then no doubt the focus was on China whose stock market is now down 50 per cent on the peak last autumn.
So will the MENA stock markets continue to perform – and it must be admitted that price-to-earnings ratios look pretty cheap despite the recovery from the 2006 market crash – if oil prices come down, perhaps crashing down?
But perhaps this is not the more immediate threat. As we saw in February this year the correlation between MENA and global capital markets has increased, an inescapable consequence of globalization and greater investment flows from foreigners, now to be joined by the new Franklin Templeton fund. In February that meant local markets tanked alongside global markets.
It could happen again, and very soon. That is one reason for caution at the moment on local stock markets despite the record oil price. Wall Street’s share prices look increasingly unsustainable with profits under attack from recession and inflation. When Wall Street has a correction then so will the MENA bourses and most likely the oil price.
Personally I would be a buyer of this fund after this correction, and not before. For any downward correction in the oil price will only be temporary as the supply and demand fundamentals will not be changed, and the MENA region, or at least the oil producers, really does have an excellent long-term outlook for investment. And Franklin Templeton have a great reputation.
