Japanese Finance Minister Yoshihiko Noda (C) speaks to reporters announcing that finance ministers from the G7 group of top economies and central bankers will hold teleconference talks, at his office in Tokyo on March 17, 2011 after the yen surged against the US dollar in morning trading. The yen continued to surge in early Asian trade, hitting a new record high since World War II of 76.52 against the US dollar following Japan's disastrous earthquake and tsunami. AFP PHOTO / JIJI PRESS
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Japanese Finance Minister Yoshihiko Noda (C) speaks to reporters announcing that finance ministers from the G7 group of top economies and central bankers will hold teleconference talks, at his office Show more

G7 finance ministers to offer Japan a helping hand



Finance ministers of the G7, a group of industrialised nations, are expected to offer support to fellow member Japan today as the world's third-biggest economy recovers from its worst disaster since the Second World War.

The talks are taking place after the yen strengthened to a post-war high, propelled by speculation that Japan will repatriate billions of dollars of foreign cash to fund rebuilding efforts.

However, it appears unlikely the world's richest nations will step in to help stabilise the currency after last week's earthquake and growing nuclear crisis.

"It's possible that there may be a decision on co-ordinated action on currency markets, but my personal view is such intervention is tricky," said Alastair Newton, the managing director and senior political analyst of the Japanese bank Nomura.

"If Japan wants a weaker yen they will more likely have to take action themselves rather than working with the euro zone and the G7."

Instead, G7 ministers are expected to extend their support to the stricken country in the form of offers of practical assistance.

Yesterday's announcement of discussions helped to stem losses in Japan's stock market. It also helped to weaken the yen as expectations rose of global action to prevent the disaster from hampering the economy.

The yen had earlier risen to 76.36 against the US dollar as the disaster appeared to deepen. Japan intensified attempts to cool overheating fuel at the Fukushima Dai-ichi nuclear plant, one of the reactors struck by the tsunami following the earthquake.

It prompted concerns among some G7 politicians about whether the crisis was grave enough to drag some countries back into recession.

Christine Lagarde, the French finance minister, said on Wednesday that G7 discussions could include the possibility of buying Japanese bonds.

Japanese bond risk has soared following the turmoil.

"I don't see much danger of Japan's tragedy derailing the global economic recovery," said Mr Newton. "It will protract the lull in the Japanese recovery."

Japan has already been recovering from the financial crisis at a slow pace as its economy remains weighed down by hefty debts.

On Wednesday, UBS lowered its growth forecast for the country this year to 1 per cent from 1.5 per cent.

Further upward swings in the yen could squeeze margins for Japan's exporters. Exports provide a vital source of funding to the economy.

Kaoru Yosano, the economics minister, appeared to rule out joint G7 currency intervention or government purchases of shares. He told Reuters news agency yesterday Japan's markets were not destabilised enough for such action.

Domestic intervention by policymakers has so far led to the Bank of Japan providing 5 trillion yen (Dh233 billion) in stimulus as it concentrates on offering intraday cash to banks.

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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.

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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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