Fund manager Rajiv Jain takes $2.8bn bet on Middle Eastern stocks

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Fund manager GQG has amassed a $2.8bn holding in companies in the Middle East and expects to raise this further, while it has cut its position in China to around half that level.

The Florida-based asset manager founded by Rajiv Jain, previously a star fund manager at Vontobel Asset Management, has built up the bet over the past 18 months, spurred on by the “business friendly” approaches of governments in the region and their plans to diversify away from a reliance on oil.

“There are massive privatisation hopes which by definition will open up the economy,” said Jain, whose firm manages $105bn in assets and is well known for a large contrarian bet it took last year on Indian conglomerate Adani. “There’s a real intention to open up and transition away from oil.” 

Jain’s investments in the region include a $1bn stake in IHC, the $246bn UAE-listed conglomerate, which he described as a good means of gaining exposure to the strong growth in the region. Last year the Financial Times reported that the company’s highly concentrated ownership made it hard to buy the shares. Jain said the free float provided plenty of liquidity.

GQG’s new interest in the Middle East means its funds now have more money invested there than in China, the world’s largest emerging market. That marks a major change of position from five years ago, when the world’s second-largest economy accounted for 40 per cent of the firm’s emerging markets portfolio.

China’s outsized weighting in emerging markets indices has made life difficult for international investors in the past year as its economy has slowed and trade tensions, particularly with the US, have remained high. It accounts for 27 per cent of MSCI’s flagship emerging markets index, compared with India’s 17 per cent and just under 8 per cent for the Middle East and Turkey combined.

Just 5 per cent of GQG’s emerging markets investments are now in Chinese companies. These bets are concentrated in state-owned groups including coal miner China Shenhua Energy and oil company PetroChina, rather than the technology plays typically favoured by foreign investors in recent years.

Jain said that China’s crackdowns on industries that are often dominated by private sector companies made investing there tough. Last month, Beijing’s sudden plans to curb excessive consumption of video games wiped 12 per cent, or around $41bn, from tech giant Tencent’s market value in a day. 

“That’s making everyone nervous on China,” said Jain. “They say they won’t do this, but then they do.” 

Global tech stocks, notably the chip sector, are also among Australia-listed GQG’s big bets as demand grows for greater computing power, especially for artificial intelligence.

“AI is going to be five to eight times as memory-intensive so we’re bullish on chips,” Jain said, adding that he was confident that current supply and demand dynamics would last for at least the next three years.

GQG was an investor in British chip designer ARM’s $5bn New York float in September and has since added to its stake.

The strength of its conviction on the chips sector also led GQG to add to its holding in Nvidia in the fourth quarter, even though the shares had already more than doubled in price that year.

Nvidia was a key driver of what last year was dubbed the Magnificent Seven including also Apple, Tesla, Microsoft, Amazon, Facebook parent Meta and Alphabet. Jain said his views on AI meant he preferred to think of a “fabulous five” minus Apple and Tesla.