Market euphoria over Spain's €100 billion (Dh461.29bn) banking bailout quickly faded yesterday as concerns about the euro zone re-emerged.
European markets rose to the highest level in four weeks in early trading, with yields on Spain's 10-year bonds plummeting as investors showed relief over a rescue plan for the country's troubled banks.
But markets soon fell from their highs, while yields on Spanish bonds crept up again. Anxiety about the upcoming Greek election was foremost in investors minds, said analysts.
"The rally today is a reflection of the relief that investors are feeling," said Rami Sidani, the Dubai-based head of Middle East and North Africa investments at Schroder Investment Management.
"Spain is a big animal, its economy is much bigger than Greece, and the official filing for help should restore confidence in the banking system which has been suffering massive withdrawals."
In early trading, the Madrid Stock Exchange General Index rallied 3.6 per cent to 690.45 points. The United Kingdom's FTSE 100 Index jumped 1.3 per cent 5,505.79, while Germany's DAX Index gained 2 per cent to 6256.32. The euro rose to the highest level in three weeks, up 1 per cent to $1.26694.
But later in the day, much of these early gains had been wiped away. Investors are looking to Greece's upcoming national on Sunday, regarded as the next market catalyst, to help determine whether the debt-ridden country commits to its austerity measures or leaves the euro zone altogether.
"We might see markets come up and wait for an outcome," said Haissam Arabi, the chief executive at Gulfmena Investments in Dubai.
"If the conservatives win, the Greeks will stick with the bailout plan and austerity measures, which would mean Greece will not be pulling out of the euro - and the euro zone is still not a failure," he added. "The risk is when you have a complete shift in the political agenda."
In the Gulf, the Dubai Financial Market General Index advanced 1 per cent to close at 1,483.00, while the Abu Dhabi Securities Exchange General Index inched up 0.3 per cent to close at 2,463.38.
Saudi Arabia's Tadawul All-Share Index, the biggest and most liquid stock market in the Gulf, rose 0.6 per cent to 6,790.96.
Brent crude futures rose 1 per cent to trade at $100.490 per barrel.
"Gulf bourses will continue to have correlation to global market to the degree that it has on the oil price, which has jumped up and that's what's setting the tone for us, for the budgets for the region and governments being able to continue spending on infrastructure," said Saleem Khokhar, the head of equities at National Bank of Abu Dhabi.
"When global growth is impacted and you see a large slowdown going through, it impacts demand for energy and that's where the link comes in."
In Asia, Hong Kong's Hang Seng Index jumped 2.4 per cent to 18,953.60. Japan's Nikkei Index and Korea's Topix Index rose 1.9 per cent and 1.7 per cent to 8,624.90 and 730.07 respectively.
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What is the FNC?
The Federal National Council is one of five federal authorities established by the UAE constitution. It held its first session on December 2, 1972, a year to the day after Federation.
It has 40 members, eight of whom are women. The members represent the UAE population through each of the emirates. Abu Dhabi and Dubai have eight members each, Sharjah and Ras al Khaimah six, and Ajman, Fujairah and Umm Al Quwain have four.
They bring Emirati issues to the council for debate and put those concerns to ministers summoned for questioning.
The FNC’s main functions include passing, amending or rejecting federal draft laws, discussing international treaties and agreements, and offering recommendations on general subjects raised during sessions.
Federal draft laws must first pass through the FNC for recommendations when members can amend the laws to suit the needs of citizens. The draft laws are then forwarded to the Cabinet for consideration and approval.
Since 2006, half of the members have been elected by UAE citizens to serve four-year terms and the other half are appointed by the Ruler’s Courts of the seven emirates.
In the 2015 elections, 78 of the 252 candidates were women. Women also represented 48 per cent of all voters and 67 per cent of the voters were under the age of 40.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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