UAE. CFA Institute, the global association of investment professionals, revealed the results of its annual Middle East Societies Market Sentiment Survey at a press conference ahead of its Middle East Investment Conference (MEIC), to be held in Abu Dhabi on 23February 2017. The survey presented responses from CFA charterholders and members from across the Middle East.
According to the survey, the healthcare industry is expected to receive the highest volume of investments in 2017 amongst non-oil sectors, followed by hospitality and tourism; as GCC countries seek to increase the economic contribution of such segments.
In Saudi Arabia, respondents indicated that capital markets opening up for foreign investments is a highly important factor in easing regional liquidity shortfalls. With rising concerns about the Trump administration’s protectionist policies and the potential risk this poses to trade agreements, the survey showed it is the US energy agenda which will have the biggest impact on the GCC.
If the dollar remains strong, the likeliest effect on investments would result from pressures on the currency peg; which would then negatively impact the real estate market.
The GCC has seen a record volume of bond issuances over the past year, with this trend expected to continue, almost two-thirds of respondents believed that bond yields in the region will increase. Nearly 70 percent of the members surveyed agreed that oil prices are unlikely to reach higher than $60 per barrel. NPLs, rising Fed rates and tightening liquidity conditions will continue to pose significant challenges to banks in the region, with the cost of raising capital likely to increase.
Amer Abdul Aziz Khansaheb, CFA, President of CFA Society Emirates, commented on the findings, saying: “Investment professionals in the Middle East are conscious of developments in the US, as the new administration’s energy agenda will have global implications on oil prices and production. Since the GCC does not have its own independent monetary policy, rate hikes by the US Federal Reserve would pressurise the region’s pegged currency, given the current liquidity challenges and low economic growth rates. Higher risk premiums and an increase in the cost of capital would also be effects resulting from such US monetary developments.”
CFA society members noted that creating incentives for foreign start-ups to set up in the GCC would be the most effective way to foster entrepreneurship and a start-up ecosystem in the region, given the growing need to diversify from an oil-driven economy. The private sector will have to play a larger role in diversification efforts as governments look to realign spending.
Mr. Khansaheb added: “We are delighted to be hosting the Middle East Investment Conference in Abu Dhabi for the second time. The findings from our survey suggest that the majority of respondents believe improving market transparency and accountability is key to improving trust in the UAE’s investment industry and ensuring long term sustainable economic growth. The survey results reflect the discussions and debates we hope to encourage at the conference, where practitioners, leading thinkers in finance and investment, and eminent speakers will reveal insights about the future of the Middle East’s financial landscape and where the opportunities lie for investors.”
Top ten key findings:
· 46% of respondents answered Very Important and 31% answered Extremely Important when asked how important will the opening up of Saudi Arabia’s capital markets be for foreign capital inflow into the region and liquidity easing.
· 42% felt that a stronger dollar is likely to pressurise the currency peg, which will then negatively impact the real estate market.
· 61% of the members surveyed believed that bond yields in the region will increase, 16% said that they would stay the same and only 11% thought that yields would decrease.
· When asked what the expected return from a multi-asset class portfolio (equity, bonds, cash, real estate, commodities, private equity etc.) is likely to be over the course of the year, 48% said in the region of 0% to less than 5% and 37% of respondents indicated that returns would be between 5% and 10%.
· Stocks was ranked as the highest performing asset class in the region during 2017, followed by commodities, private equity, bonds, real estate and lastly cash equivalents.
· The healthcare industry is expected to receive the highest volume of investments in 2017 amongst non-oil sectors.
· 47% believe that lower market growth rates and the increased cost of raising capital shouldn’t necessarily impact corporate profitability in the region.
· More than trade agreements and fed policies, the Trump administration’s energy agenda will have the biggest impact on the GCC.
· NPLs, rising Fed rates, tightening liquidity and credit risk will continue to be the biggest concern for banks in the region.
· Brent crude oil prices are expected to remain in the $50-$60 region during the year.
An online survey was conducted from 22nd January to 13th February 2017. Participants included 100 CFA society members across its societies in Bahrain, Kuwait, Saudi Arabia and the United Arab Emirates.