Over the past year, I have effectively taken a 50 per cent pay cut. This is not because I want to save my employers a few extra dirhams a month - I am sure they are doing quite nicely without my help.
It's the fault of the Americans and their feeble currency. When I first arrived in the UAE, I was getting close to 11.25 South African rand, my home currency, to the dollar. Today, it's about 6.7 rand to the dollar, which means, in effect, I am doing the same work for almost half the cash. Luckily, I am a very altruistic person.
For expatriates earning euros, pounds and Australian dollars, the situation is little better. All these currencies have gained against Uncle Sam's green. Which, of course, is linked to the dirham.
Canadians will get 20 per cent less for their loonies and Australians even less - they take a 30 per cent cut.
Currency fluctuations are the bane of offshore earnings. Good when they work for you, bad when they don't. And it makes planning difficult because you can never count on a steady rate.
Hedging is a strategy you can employ to offset currency losses - either by using exchange-traded funds or directly through buying shares.
The first is to look at stocks of companiesthat report their costs in dollars, but export heavily and so earn a significant amount of their income offshore. Coca-Cola, Phillip Morris, Nike and McDonald's, for instance.
Barry Knapp, a US equity portfolio strategist at Barclays Capital, illustrated this in The Wall Street Journal a week ago. He said that in the fourth quarter of 2003, the dollar fell 5.8 per cent on inflation fears. In response, the large-cap S&P 500 index surged 11.6 per cent. The S&P is heavily weighted to exporters.
Essentially, as the dollar weakens, the share price of a hedge stock rises concomitantly. Analysts will tell you this is because the fundamentals of the company are changing. Each cent the greenback gives up is translated as a cent of profit for a corporation earning profits in pounds, euros or rands.
But for hedge purposes, the fundamentals are not especially important. As long as a company is on the radar of large currency holders, its share price is going to reflect minute intra-day fluctuations of the dollar.
This principle is not just applicable to the greenback. It works with any currency you care to mention. In times of pound weakness, for instance, shares such as BHP Billiton and Rio Tinto will become the choice of currency hedgers.
Because I am South African, my hedge favourites during times of rand weakness have tended to be miners - they pay their way in local currency and sell their produce in dollars.
Gold and platinum are, of course, other hedge favourites. Like oil, the price of gold rises as the dollar weakens. It does this not so much because the underlying commodity is worth more, but because the dollar is worth less.
This may be a small comfort to the citizens of the Home of the Brave, who must now pay 40 per cent more than they did a year ago to fill up their minivans. It's no consolation that the value of the juice they put in their tanks has not changed much in 12 months - it's their wallets that have shrunk.
Big companies know this. And they have hedge strategies to protect themselves from all this unpleasantness. For us little guys, this also works to our advantage. Because the Nikes and United Airlines of the world have to hedge, they are compelled to buy into stocks that will react to currency movements.
The stock of the hedge companies will surely react to the large influx of money running for cover. Investors and speculators will anticipate the movement and pile in as long as the dollar is on the ropes. The performance of these stocks therefore becomes a self-fulfilling prophecy.
Hedging is not without risk. Currency value is notoriously fickle and can quite easily change direction. Recently, silver investors discovered just how fast a commodity - and currency hedge favourite - can switch from a bull to a bear.
There's also a fine line between hedging - that is, protecting yourself against risk - and speculation. Hedging is not, strictly speaking, about making money. It's about keeping the money you have intact.
Gavin du Venage is a business writer and entrepreneur based in South Africa.
pf@thenational.ae
Tuesday's fixtures
Kyrgyzstan v Qatar, 5.45pm
Key changes
Commission caps
For life insurance products with a savings component, Peter Hodgins of Clyde & Co said different caps apply to the saving and protection elements:
• For the saving component, a cap of 4.5 per cent of the annualised premium per year (which may not exceed 90 per cent of the annualised premium over the policy term).
• On the protection component, there is a cap of 10 per cent of the annualised premium per year (which may not exceed 160 per cent of the annualised premium over the policy term).
• Indemnity commission, the amount of commission that can be advanced to a product salesperson, can be 50 per cent of the annualised premium for the first year or 50 per cent of the total commissions on the policy calculated.
• The remaining commission after deduction of the indemnity commission is paid equally over the premium payment term.
• For pure protection products, which only offer a life insurance component, the maximum commission will be 10 per cent of the annualised premium multiplied by the length of the policy in years.
Disclosure
Customers must now be provided with a full illustration of the product they are buying to ensure they understand the potential returns on savings products as well as the effects of any charges. There is also a “free-look” period of 30 days, where insurers must provide a full refund if the buyer wishes to cancel the policy.
“The illustration should provide for at least two scenarios to illustrate the performance of the product,” said Mr Hodgins. “All illustrations are required to be signed by the customer.”
Another illustration must outline surrender charges to ensure they understand the costs of exiting a fixed-term product early.
Illustrations must also be kept updatedand insurers must provide information on the top five investment funds available annually, including at least five years' performance data.
“This may be segregated based on the risk appetite of the customer (in which case, the top five funds for each segment must be provided),” said Mr Hodgins.
Product providers must also disclose the ratio of protection benefit to savings benefits. If a protection benefit ratio is less than 10 per cent "the product must carry a warning stating that it has limited or no protection benefit" Mr Hodgins added.
Like a Fading Shadow
Antonio Muñoz Molina
Translated from the Spanish by Camilo A. Ramirez
Tuskar Rock Press (pp. 310)
THE SPECS
BMW X7 xDrive 50i
Engine: 4.4-litre V8
Transmission: Eight-speed Steptronic transmission
Power: 462hp
Torque: 650Nm
Price: Dh600,000
Schedule:
Sept 15: Bangladesh v Sri Lanka (Dubai)
Sept 16: Pakistan v Qualifier (Dubai)
Sept 17: Sri Lanka v Afghanistan (Abu Dhabi)
Sept 18: India v Qualifier (Dubai)
Sept 19: India v Pakistan (Dubai)
Sept 20: Bangladesh v Afghanistan (Abu Dhabi) Super Four
Sept 21: Group A Winner v Group B Runner-up (Dubai)
Sept 21: Group B Winner v Group A Runner-up (Abu Dhabi)
Sept 23: Group A Winner v Group A Runner-up (Dubai)
Sept 23: Group B Winner v Group B Runner-up (Abu Dhabi)
Sept 25: Group A Winner v Group B Winner (Dubai)
Sept 26: Group A Runner-up v Group B Runner-up (Abu Dhabi)
Sept 28: Final (Dubai)
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
Key 2013/14 UAE Motorsport dates
October 4: Round One of Rotax Max Challenge, Al Ain (karting)
October 1: 1 Round One of the inaugural UAE Desert Championship (rally)
November 1-3: Abu Dhabi Grand Prix (Formula One)
November 28-30: Dubai International Rally
January 9-11: 24Hrs of Dubai (Touring Cars / Endurance)
March 21: Round 11 of Rotax Max Challenge, Muscat, Oman (karting)
April 4-10: Abu Dhabi Desert Challenge (Endurance)
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
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.”
Employment lawyer Meriel Schindler of Withers Worldwide shares her tips on achieving equal pay
Do your homework
Make sure that you are being offered a fair salary. There is lots of industry data available, and you can always talk to people who have come out of the organisation. Where I see people coming a cropper is where they haven’t done their homework.
Don’t be afraid to negotiate
It’s quite standard to negotiate if you think an offer is on the low side. The job is unlikely to be withdrawn if you ask for money, and if that did happen I’d question whether you want to work for an employer who is so hypersensitive.
Know your worth
Women tend to be a bit more reticent to talk about their achievements. In my experience they need to have more confidence in their own abilities – men will big up what they’ve done to get a pay rise, and to compete women need to turn up the volume.
Work together
If you suspect men in your organisation are being paid more, look your boss in the eye and say, “I want you to assure me that I’m paid equivalent to my peers”. If you’re not getting a straight answer, talk to your peer group and consider taking direct action to fix inequality.
