Dust off your recession strategy, and keep exercising your credit



As we seem headed for round two of the Great Financial Embarrassment, it might be a good time to look at survival strategies for getting through a recession.

Rule one: resist the urge to strangle anyone who tells you to get out of debt.

You might be one of the few who does not owe large amounts of money to anybody. Hooray for you. Most of us, though, live at the pleasure of HSBC or some other banking institution. We owe money and probably will until the man with the big scythe comes along.

The priority, therefore, is not so much getting out of debt, but managing it. A good credit score - and line of credit - is gold. Banks might be clutching their pennies as tightly as an old lady with a handful of coupons. But when they do lend it, it's cheap. The UAE, with its US-tied dirham, has among the lowest lending rates in the world right now.

Put another way - why borrow when banks are eager to give it to you because they're coining it due to high interest rates? Ordinarily, I would not advocate shopping as a good way to spend money you don't actually have. But if you need to run up your credit cards, now is the time to do it.

Economists make a basic assumption that when a recession ends, it does so with a bang. Years of pent-up demand mean consumers go wild, replacing cars, TVs and treating themselves to holidays. It's also a given that manufacturers and retailers use this time as well - to hike prices to make up for years of low growth.

During hard times, they can't pass cost increases to the consumer. They have to eat inflationary costs, just to keep their market share. Just look at the grocery war under way in the UK right now. Tesco, Sainsbury's and Asda are racing to the bottom with prices to lure reluctant consumers, who in good times were piling up their trolleys. You can bet they won't be doing this when good times return, whatever their advertising agencies tell you.

This downturn won't last. Ergo, if you have cash, or a decent credit line, now is the time to use it. Of course, this does not mean maxing out your cards. Debt, like marriage, is tricky to manage. You don't want it to manage you.

I do get the point that paying interest on credit used to keep the lights burning is kind of a tax. And it can quickly get out of control. No doubt, quite a few people can testify to the consequences of mismanaging debt, more so on the back of high interest rates.

But unless someone comes along - another Karl Marx, for instance - we are going to live in a world that will be heavily dependent on your ability to run up your credit cards.

It's interesting to see that even some conservative economic observers put their hands in their heads when David Cameron, Britain's prime minister, said consumers should pay off their credit and store cards. "Clueless Cameron's Credit Card Gaffe" ran a headline in the Daily Mirror.

Clearly, Mr Cameron does not get it. As a species, we are genetically wired to go out and work, then spend like crazy to help us forget the miserable hours spent in the office. And the last thing the financial system needs is less consumer spending.

As for how much credit is good, my approach is to make sure that I can pay off my credit card within a couple of months. But I like to see it at a zero balance at least once a month, even if it's just for a few hours.

Properly managed, your credit line can also be a life-saving bridge should you lose your job. It can pay your expenses and, possibly, relocation costs.

But to keep it, you need to use it. Banks are now closely monitoring their client's credit activities. Running up your cards and quickly paying them off are a good sign. They will be more inclined to extend further credit if they can see you manage it.

So keep using your credit cards and overdraft. But do so carefully. Well-managed debt can make all the difference when you face a genuine financial crisis.

Gavin du Venage is a business writer and entrepreneur based in South Africa.

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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