Business

Gulf investors more positive

Gulf investors are more upbeat about business prospects this year and expect a year-end rally in UAE stocks, according to a survey.

Uta Harnischfeger

September 28, 2009

Gulf investors are more upbeat about business prospects this year and expect a year-end rally in UAE stocks, according to the latest survey by Shuaa Capital. Investor confidence climbed this month to 127.3 from August's reading of 126.3 after improving for the past six months, with only one month-on-month drop in April, the regional investment bank said yesterday.

"Until recently people kept asking 'when is the worst over'?" said Jeffrey Singer, the chief executive of NASDAQ Dubai, one of the emirate's two stock exchanges. "But now I hear them ask 'how are things?' instead." The positive sentiment was most pronounced in the six-month outlook for the GCC. Only one in 10 investors have a negative outlook, the report said. Two in three investors said they would invest in the region in the next six months.

The survey is based on 750 international and 750 investors in the region. "In the past, uncertainty has been the main driver for investor confidence. But now professional investors seem to stay here longer. While there were lots of hedge funds in 2007, we are seeing less risky investor types now," said Oliver Schutzmann, a Shuaa Capital spokesman. Confidence in current economic conditions rose strongest in Bahrain and the UAE, with gains of 19.6 points to 76.5 and 11.7 points to 90.2 respectively. A reading above 100 is positive.

However, investors remain negative on the current economic conditions in the UAE, the survey indicates. About half of the respondents expect a "year-end rally" on the Abu Dhabi Securites Exchange and the Dubai Financial Market. Almost half of the respondents consider Abu Dhabi stocks undervalued. The FTSE NASDAQ Dubai index, which tracks the UAE's 20 most liquid stocks, is up 76 per cent so far this year. Meanwhile, the MSCI regional index is up 25 per cent.

"It looks like the UAE is outpacing the rest of the region. But then you may argue that the UAE was harder hit," said Mr Singer. Mr Singer said global trading volumes had picked up in the past two months. "Investors are getting back into the markets. People are proceeding cautiously, but are more optimistic than six months ago. Some progress is being made." Two factors are still holding back optimism, Mr Singer said. The large number of unemployed in the US and Europe are a "huge drag on future spending" and "the sheer size of debt of the US and Europe is causing concerns over inflation".

uharnischfeger@thenational.ae

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The Baha'i faith was made known in Yemen in the 19th century, first introduced by an Iranian man named Ali Muhammad Al Shirazi, considered the Herald of the Baha'i faith in 1844.

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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.

“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.”