The GCC equity markets that have missed the global equities bonanza this year, may rally in 2018 as economic reforms start bearing fruits and investor enthusiasm rise on the back of Aramco share float and anticipation of market upgrades, according to a market report.
“The broadly accepted view is that the equity markets will remain in a tight trading range until around the middle of next year,” Tarek Fadlallah, the chief executive officer at Nomura Asset Management Middle East said in the ‘Decade of Disruption’ research report.
Several factors, he said, will come into focus post Eid al Fitr in 2018 including rising speculation over the inclusion of the Saudi Tadawul, the biggest Arab bourse by market capitalisation, into MSCI Emerging Market and FTSE indexes, that will draw out domestic buyers ahead of any formal announcements. Anticipation over Saudi Aramco’s initial public offering, which the kingdom said is on track for 2018, and other major privatisations deals across the region may also lure international investors to regional equities markets, he added.
The series of reforms announced over the past year should also begin to yield some initial results, or at least provide increased visibility, which will help reassure investors, according to the report.
“With expectations well anchored, there is scope for upside surprises from bigger than expected fiscal stimulus packages, lower bank reserve ratios that encourage lending, a spike in oil prices beyond current forecasts or an easing in geopolitical tensions — but these are low probability scenarios,” Fadlallah noted.
Governments in the Arabian Gulf region, which accounts for about a third of the world’s proven oil reserves, are implementing fiscal reforms and are trying to transform their economies with privatisation being the main pillar of diversification strategy. Saudi Arabia has taken the lead with plans to unlock value in several state assets including Aramco’s share float, which could yield estimated $100bn.
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Read more:
GCC corporate earnings to remain stable in 2017, report says
Saudi Arabia added to watchlist for emerging market status by MSCI
EFG-Hermes says "good chance" that Saudi Arabia and Kuwait will be upgraded to emerging market status by FTSE
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The six-member economic bloc still relies heavily on the sale of crude for revenues and a fall in oil prices since the mid-2014 peak of $115 a barrel has forced the governments to cut spending slowing the pace of economic growth, which has dented the investor confidence. The MSCI GCC Countries index has dropped 2.6 per cent since the beginning of this year, which compares to the 35 per cent return by MSCI Asia and multiple record highs for the S&P 500 index in the US this year.
On a positive note, however, the evolution of the capital markets across the region, Saudi Arabia in particular, has been “impressive with tremendous work being done by the Capital Market Authority and the Tadawul in preparing for deeper, more diverse and more transparent markets,” he said.
“There are high expectations that the elevation of local markets, in Kuwait and Saudi Arabia for example, into the major emerging market indices will lead to huge foreign buying, especially among indexed funds.”
Saudi Arabia last month announced several major investment initiatives at the three-day Future Investment Initiative in Riyadh including the $500bn Neom project, which the report said is a reflection of the country's economic policy ambitions, indicating dreaming big is perhaps necessary to meet the enormous challenges. Saudi Arabia is not the only Arabian Gulf state pushing ahead with ambitious development plans amid tougher economic conditions. Other sovereigns are also looking to carry on building the social and hard infrastructure schemes in partnership with foreign investors.
“Development ambitions across the region are encouraging but it’s obvious that a lot of work is still needed to attract foreign direct investment and facilitate greater participation in the local economies,” he said “Sovereign wealth funds, working with private investors and public institutions, can help smooth the transition and fund economic transformation.”
On the global front, Mr Fadlallah said the economy is performing well with synchronised growth underpinned by rising confidence, easy monetary conditions and a willingness to allow systemic debt to increase without any defined limits.
“The capital markets appear relaxed about the Fed’s gradual balance sheet unwinding so long as the European Central Bank and the Bank of Japan continue to fund their asset buying trading desks with freshly printed Euros and Yen,” he said. “The JPM global composite PMI data and OECD unemployment rates have been trending favourably and are consistent with forecasts for continued growth.”
He however, was critical of equities valuations and said are not “justifiable or sustainable”.
War
Director: Siddharth Anand
Cast: Hrithik Roshan, Tiger Shroff, Ashutosh Rana, Vaani Kapoor
Rating: Two out of five stars
COMPANY%20PROFILE
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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.”
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Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
Israel Palestine on Swedish TV 1958-1989
Director: Goran Hugo Olsson
Rating: 5/5
Results
1. New Zealand Daniel Meech – Fine (name of horse), Richard Gardner – Calisto, Bruce Goodin - Backatorps Danny V, Samantha McIntosh – Check In. Team total First round: 200.22; Second round: 201.75 – Penalties 12 (jump-off 40.16 seconds) Prize €64,000
2. Ireland Cameron Hanley – Aiyetoro, David Simpson – Keoki, Paul Kennedy – Cartown Danger Mouse, Shane Breen – Laith. Team total 200.25/202.84 – P 12 (jump-off 51.79 – P17) Prize €40,000
3. Italy Luca Maria Moneta – Connery, Luca Coata – Crandessa, Simone Coata – Dardonge, Natale Chiaudani – Almero. Team total 130.82/198.-4 – P20. Prize €32,000
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
UAE currency: the story behind the money in your pockets
UAE currency: the story behind the money in your pockets
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
KILLING OF QASSEM SULEIMANI
The rules on fostering in the UAE
A foster couple or family must:
- be Muslim, Emirati and be residing in the UAE
- not be younger than 25 years old
- not have been convicted of offences or crimes involving moral turpitude
- be free of infectious diseases or psychological and mental disorders
- have the ability to support its members and the foster child financially
- undertake to treat and raise the child in a proper manner and take care of his or her health and well-being
- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
The nine articles of the 50-Year Charter
1. Dubai silk road
2. A geo-economic map for Dubai
3. First virtual commercial city
4. A central education file for every citizen
5. A doctor to every citizen
6. Free economic and creative zones in universities
7. Self-sufficiency in Dubai homes
8. Co-operative companies in various sectors
9: Annual growth in philanthropy
FINAL LEADERBOARD
1. Jordan Spieth (USA) 65 69 65 69 - 12-under-par
2. Matt Kuchar (USA) 65 71 66 69 - 9-under
3. Li Haotong (CHN) 69 73 69 63 - 6-under
T4. Rory McIlroy (NIR) 71 68 69 67 - 5-under
T4. Rafael Cabrera-Bello (ESP) 67 73 67 68 - 5-under
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The%20Kitchen
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Sukuk explained
Sukuk are Sharia-compliant financial certificates issued by governments, corporates and other entities. While as an asset class they resemble conventional bonds, there are some significant differences. As interest is prohibited under Sharia, sukuk must contain an underlying transaction, for example a leaseback agreement, and the income that is paid to investors is generated by the underlying asset. Investors must also be prepared to share in both the profits and losses of an enterprise. Nevertheless, sukuk are similar to conventional bonds in that they provide regular payments, and are considered less risky than equities. Most investors would not buy sukuk directly due to high minimum subscriptions, but invest via funds.
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Our legal columnist
Name: Yousef Al Bahar
Advocate at Al Bahar & Associate Advocates and Legal Consultants, established in 1994
Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers
Ms Yang's top tips for parents new to the UAE
- Join parent networks
- Look beyond school fees
- Keep an open mind
