beyondbrics

By Lina Saigol

After coming top among emerging market equity fund managers in 2011, executives at Tunisian financial services company MAC be forgiven a little boast.  Their shariah-complaint MAC al Houda beat the world’s best in 2011 – and they expect another good result in 2012.

“The fund is expected to perform well next year also, given the expected recovery of the Tunisian economy,” says Salma Zammit, one of MAC’s senior investment analysts. With the new government aiming to modernise Tunisia and create in Tunis a hub for Islamic finance, it could be a matter of being in the right place at the right time for MAC.

MAC Al Houda, launched in October 2010 just three months before the overthrow of the repressive Ben Ali regime,  generated total returns for 2011 by December 20 of  18.5 per cent,  according to figures prepared for the FT by Lipper, the financial research company.

The fund was one of three Tunisian vehicles in the top 10 EM equity funds of 2011.  The other two were FCP Viveo Nouvelles Introduites,  managed by Traders Investment Management, a local investment management company, which came second with a total return of 5.8 per cent, and FCP Actions proactif, managed by Helion Capital, another local financial group, which was in sixth place with returns of -2.2 per cent.

They all beat the Tunisian stock market which fell about 8 per cent (or 6 per cent allowing for dividends) and the effects of a 2 per cent drop in the Tunisian dinar against the dollar over the year. And they all had an easier time that their international rivals which had to contend with a 20 per cent decline in emerging market equities in dollar terms.

To be fair, all are also small, giving them lots of flexibility.  MAC al Houda has assets of $150,000, Viveo Nouvelles Introduites of $270,000, and Actions proactif of $1.02m, according to Lipper.

Ferid Larbi, general manager of Traders Investment Management, said in an emailed note that his fund follows a bottom-up approach.  “We base our selection of investee companies on fundamental research by doing frequent visits and interviews with CEO and top management . We focus on companies with high value growth potential.”

Larbi expects economic growth to continue:

We think that growth will continue as the Tunisian economy stabilizes following the new elected Tunisian Constituent Assembly. However a flight for quality assets has started and we may see some arbitrage in the Tunisian market. …As the dust settles down further, [our] analysis can be more focused on core fundamentals of companies and the underlying economy.

Nahda, the moderate Islamist party that has emerged as the largest party in the constituent assembly, has said it will encourage Islamic finance to help diversify the banking sector. However, it rejects suggestions that it will turn the whole banking sector Islamic.

Tunisian finance minister Jalloul Ayed told a conference in July that the government wanted to make the country a hub for Islamic finance.

A finance law due next year is expected to include measures to align the tax treatment of Islamic banking products to those offered by traditional banks and put them on an equal competitive footing. The finance ministry is also working on setting up the regulatory and fiscal frameworks to launch a sukuk (Islamic bond) market.

MAC al Houda has 80 per cent of assets in Tunisian stocks, with the rest in bonds. Viveo Nouvelles Introduites invests mainly in equities of companies that have been listed for less than five years in the Tunisian stock exchange. The fund also invests in cash, cash equivalents, and other Tunisian funds.

In the Tunisian stock market, the best performing sectors of 2011 were construction and building materials and industrials. By contrast, the worst performers were banks, some of which have exposure to loans from former regime members.

Globally, Islamic banking assets with commercial banks could rise 33 per cent to reach US$1.1 trillion in 2012, according to Ernst & Young’s first World Islamic Banking Competitiveness Report 2011.

The report, published in November, said Islamic banking assets in the Middle East and North Africa (MENA) region increased to $416bn in 2010, representing a five year annual growth of 20 per cent compared to less than 9 percent for conventional banks.

As new geographies open up to Islamic banking, the MENA Islamic banking industry is expected to more than double to $990bn by 2015, the report added. A chance for Tunis to find a niche for itself? Perhaps.

NOTE – updated to include Ferid Larbi’s comments.

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