Interactive Investor

Ian Cowie: the area of the world investors are missing out on

22nd June 2023 10:35

by Ian Cowie from interactive investor

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Our columnist explains why the long-term prospects are bright for this under-the-radar investment trust he bought over a year ago.

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Very few British investors have any direct exposure to one of the wealthiest regions in the world, which might be about to get even richer, as it has some of the biggest oil and gas deposits on this planet. You don’t need to like everything about the Gulf of Arabia to consider gaining a stake in the capital growth and income it is generating.

That’s why, on Tuesday this week (20 June), China National Petroleum Corporation (CNPC) signed a 27-year deal to buy 4 million tonnes of liquefied natural gas (LNG) per annum from QatarEnergy. At the same time, CNPC bought a 5% equity stake in Qatar’s new North Field project, which is the largest LNG reservoir in the world.

This deal might have attracted more attention in calmer times but, with the war in Ukraine plus political excitement in London and Washington DC, it was scarcely reported outside the trade press. It’s doubly significant because it is the second such contract the Gulf state has signed with a Chinese state-sponsored company in less than a year.

The earlier 27-year deal was done with Sinopec and has been described as “the longest gas supply agreement in the history of the LNG industry’’. China is quietly buying up vital commodities while the rest of the world is distracted by the noise elsewhere.

Coming down from the clouds, investment trusts have always provided convenient and cost-effective ways for shareholders of all sizes to participate in markets overseas. For example, I am jolly glad I paid $1.86 per share for the self-descriptive Gulf Investment Fund (LSE:GIF) in February last year.

GIF shares cost $2.42 this week and continue to yield 2.9% dividend income. Payouts are rising sharply, according to independent statisticians Morningstar, which calculates that GIF has increased shareholders’ income by an average of 18.5% per annum over the last five years.

Better still, a high and rising income has not meant low or no growth. GIF has delivered top-of-its-sector total returns of 223% over the last decade and 169% over the last five years, followed by a relatively modest 13% over the last year.

That recent diminution of returns is due to the oil price falling by more than a third, and LNG plunging by two-thirds, from their peak levels last year. But both fossil fuels remain important elements in the lifeblood of industrialised economies, with LNG being the lesser of two evils in terms of carbon emissions.

While considering controversial aspects of Arabia, it is only fair to admit that their approach to human rights - including those of foreign workers and same sex couples - often fall short of what is regarded as normal here. However, the days are long gone when Britain could tell other countries how to arrange their domestic affairs.

It is also important to understand that GIF’s geographical sector, the area covered by the Gulf Co-operation Council (GCC), is an economic zone that spans six sovereign jurisdictions: Bahrain, Kuwait, Oman, Saudi Arabia, Qatar and the United Arab Emirates (UAE).

People who live and work in these countries tell me there are wide variations between them and within them, in terms of what can or cannot be done in private or in public. Put another way, what you get up to in your home or hotel is less likely to attract censure than what you do on the street or beach; just as used to be the case, not so long ago, in Britain.

Bear in mind that homosexuality was a criminal offence in England until 1967. It remained a crime in Scotland until 1980 and in Northern Ireland until 1982.

Either way, the Gulf of Arabia’s human rights abuses are not on the same industrial scale as China’s imprisonment of more than one million Muslim Uyghurs in the forced labour camps of Xinjiang or state-sponsored murder on the streets of Moscow and the imprisonment of dissidents in Siberia. However, that’s only my opinion and it may have been formed by the fact that work took me to China and Russia several times but never to the Gulf.

Back to business, the top and second-best investment trusts in the Association of Investment Companies (AIC) ‘Global Emerging Markets’ sector over the last year are JPMorgan Emerging Europe, Middle East & Africa (LSE:JEMA) and BlackRock Frontiers (LSE:BRFI), with 71% and 19% respectively.

JEMA, formerly called JPMorgan Russian Securities, bounced back from shocking falls of 76% over five years and 69% over the last decade, with its largest allocation in Saudi Arabia. BRFI was steadier with positive returns of 14% and 94% over the same periods but Saudi is also its second-biggest allocation after Indonesia.

All of which raises the perennial question: is it possible to be an ethical investor in emerging markets? The correct answer probably depends on each individual’s personal experience and every active investor can make up her or his own mind.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Gulf Investment Fund as part of a diversified global portfolio of investment trusts and other shares.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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