Over the last ten issues, we have investigated the region's stock markets. With so many exchanges and a plethora of companies, how does the private investor get involved? In the first of a two-part series, ANDREW ALBUM investigates.

A joke currently being told in the investment banking world

defines 'emerging stock markets' as those where 'an investor once in, finds it difficult to emerge.' In spite of a host of problems, such as the lack of transparency, poor custodianship, illiquid trading conditions, lackadaisical regulation and dubious accounting practices, not to mention the volatility of share prices, billions of dollars of global investor money has been pouring into emerging markets. The search for the elusive rapid return began in South East Asia spreading to Latin America and Eastern Europe. Now, as we have reported throughout this year, the odyssey has reached the Middle East.

REGIONAL FUNDS: SUMMARY

           Launch              Managed
           Date       Size     From        Listing      Status

FOREIGN    Nov 1994   $39.1m   London      New York
Closed-Ended
&
COLONIAL

ALLIANCE   Jan 1995   $5.6m    Istanbul    Luxembourg   Open-Ended
CAPITAL

MARTIN     Apr 1995   $20.0m   Edinburgh   Dublin       Open-Ended
CURRIE

Investors, excited by the prospects of a boom - fuelled by the results of a plethora of structural adjustment programmes and the fruits of co-operation born out of the peace process - are stampeding into local bourses, from Morocco in the west, across to Oman in the east. This is not a venture for the faint-hearted, however. The rewards can be large but the stakes are high. Many have had their fingers burnt, such as the fund manager who bought shares in Turkey, which it later transpired were bogus and were also being sold from the backs of cars in that country's capital! With prices rising and plummeting quickly, as one investor warns those tempted, "buckle up and prepare for the ride of your life..."

For most private investors, it is simply not possible for them to buy the shares of individual companies which are quoted on various exchanges in the region. They have neither the expertise, capital nor ability to do this. So how do investors get a piece of the action?

The answer is through what are known as pooled funds. Essentially, this involves a number of investors clubbing together and pooling their capital. They then employ a fund manager, with the relevant expertise, to manage their money according to an agreed objective. Such investments - of which mutual funds and unit trusts are perhaps the most well-known types - give individuals access to opportunities which would otherwise be beyond their reach.

Locally based funds have recently been launched in a number of regional countries, such as Bahrain, Tunisia and Morocco. In addition, several international investment houses have also launched their own funds to give overseas investors access to Middle East markets.

Essentially, there are two types of fund available. The first are known as 'single country funds'. As their name suggests, they restrict the shares that they hold to one particular country. These will be dealt with next month.

Under the adage that risk is reduced by spreading investments, a number of 'regional funds' have also been launched. Some, such as GT's Africa Fund, Baring's Simba Fund and Abtrust's Frontier Markets fund include some Middle East countries within their portfolio. In addition, for the investor who wants to restrict their exposure specifically to the markets of the Middle East, there are three investment vehicles available.

Foreign and Colonial Emerging Middle East Fund Inc: The fund's objective is to achieve long-term capital appreciation. The technique adopted by the managers is a top-down fundamental country analysis, which seeks to identify core sectors in specific markets which it is believed offer good value. With the support of local brokers and through visiting companies in the region, the managers select individual securities which they believe offer good value. The fund is currently overweight in Moroccan shares, which it believes offer particularly good value, but is adopting a more cautious approach to Turkey and Israel, although it has identified certain companies in those two markets that it believes have good potential.

Alliance Middle East Opportunities Fund: This is the only fund which is managed from within the region, and has a slightly less diverse geographical spread. The experts at Alliance employ a 'bottom up' stock-selection process. That is, they seek to identify undervalued companies in the region. At present, they share Foreign & Colonial's pessimism about Israel, but are more inclined towards Egypt and Turkey than to Morocco.

Near East Opportunities Fund: The fund managers at Martin Currie have restricted their holdings to Israel and the Near East, avoiding both Turkey and the Maghreb, so comparisons with the other two regional funds are difficult. Fund manager Tristan Clube is also optimistic about Egypt but is primarily focusing on the Israeli market.