Egypt's attractive demographics and high growth potential cannot mask the fact it is missing key ingredients for huge, long-term success.
Baveja, who currently has a 12% of his fund invested in the country, said emerging market countries like Egypt need stronger fundamentals to attract large-scale investment.
He told Citywire Selector: 'What is not in place is the macroeconomics - the current account deficit and the fiscal deficit - these are two things which are lacking in many emerging markets, including Egypt.'
'There could be mismanagement, a weak government, and religious fundamentalism - but demographics triumph when macroeconomic issues are solved or start looking better.'
Baveja highlighted Pakistan, where he said the market generated more than 200% returns in US dollar terms once the macroeconomics started looking up. Baveja said Egypt could potentially follow in its footsteps.
'I wouldn’t be surprised if Egypt also treads the same path if they bridge the deficits thanks to a deal with IMF, Zohr gas-filled production, which is still a couple of years away, and the return of tourists from Europe.'
'In a high inflation economy like Egypt, it is necessary to look for businesses with pricing power that have been able to pass on any inflation in the past. It could be with a lag of a few quarters, but then these businesses come back to growth and profitability.'
Niche sectors hold pockets of excellence
Baveja believes the same values apply to Saudi Arabia, where low oil prices have generated a lot of negative sentiment, which Baveja said is justified as the Saudi economy is dependent on oil.
‘As opposed to Egypt, Saudi also have a massive foreign currency reserve to ride through tough times for next few years. Yet, in each economic scenario, one still can find pockets of excellence and niche sectors that are still delivering growth and generating decent returns on capital.’
‘Our holdings in Saudi benefit from low oil prices. The Saudi government is trying to cut expenditure by, for example, pushing healthcare and motor insurance costs onto individuals and the private sector.’
Baveja, who currently has a 48% county exposure to Saudi Arabia, said the health and general insurance sectors look extremely attractive in the country.
It should benefit the private hospitals as the government encourages the private sector to provide incremental capacity, he added.
'The answer is to look for niche companies, to look at specific sectors, to look at specific businesses which do well in both high and low oil price environments. One should be wary of discretionary expenditure and government-related expenditure and wary of businesses that do well when things are good.'
The Charlemagne Magna MENA fund returned 48.17% in US dollar terms over the three years to the end of August 2016. This compares to a 4.33% drop by its Citywire-assigned benchmark, the S&P Pan Arab Composite TR, over the same time frame.