Political instability, conflict and threat of terrorism, along with a possible oil price decline are the primary concerns of high net-worth individuals (HNWIs) in the GCC region, according to a new study.
For both the global and regional economies, most HNWIs feel the investors are braced for worsening conditions or more of the same in 2017, said GCC Wealth Insight Report, prepared by the Emirates Investment Bank (EIBank), an independent private bank based in the UAE.
However, over the next three to five years, there is a positive outlook, with a strong majority of HNWIs optimistic for the global economy (76 per cent) and the Gulf economy (75 per cent).
In terms of asset allocation, the distribution of HNWIs’ wealth is broadly similar to previous years, with wealth most likely to be allocated to their own business (34 per cent). However, there does appear to be a continued shift since 2015 towards HNWIs having a greater share of their wealth in cash/deposits (27 per cent, up from 17 per cent in 2015) and away from real estate as an investment (15 per cent, down from 30 per cent in 2015). As in previous years, HNWIs from the GCC are focused on growing their wealth (80 per cent), rather than preserving it and there is a strong preference for regional HNWIs to keep their assets closer to home (72 per cent).
Commenting on the Report, Khaled Sifri, CEO of Emirates Investment Bank, said: “From a global perspective, 2016 was marked by heightened volatility across a range of markets and asset classes. This was certainly felt here in the GCC and, despite governments implementing structural reform plans and steady gains in the price of oil, liquidity remained relatively tight. It is, therefore, no surprise that this year’s GCC Wealth Insight Report shows that investors are expecting a flat or, possibly, declining economic performance in 2017 – both at a regional and international level. It was particularly interesting to see 18 per cent of respondents say they had discontinued projects due to local economic conditions.
“However, over a three to five year horizon, there is a greater sense of optimism, with HNWIs expecting of a more favourable oil price and for the region’s economies to show strength and growth. The report does suggest a bit more caution concerning the medium-term outlook compared to previous years but my view is that this is more realistic given the nature of the global economic and political climate,” he said.
“Emirates Investment Bank has helped its clients navigate through a number of business cycles. At the core of our advice to clients has always been the importance of investment diversification and focusing on long-term sustainable growth. If the world has learned anything from 2016, it is that nothing is certain and that an investor must always consider all possible outcomes,” added Sifri.
Sifri launched the report at The Palace Downtown Dubai at an event attended by the bank’s clients and peers. Sifri and Ranya Afifi, director of The Economist Corporate Network Menat region, then discussed on stage the key findings of the report and the implications for the region.
Afifi said: “There are a multitude of similarities between the perceptions of HNWIs and the multinational corporates operating in the region towards macro-driven challenges and operational risks affecting investment decisions. Both cohorts have been impacted the most by oil prices and ensuing tightening liquidity. Structural reforms are bound to impact investment decisions over the medium term. The Economist Intelligence Unit believes that in this transformational phase lies a plethora of opportunities for the private sector to lead the next phase of development in the GCC through PPPs, SMEs, transfer of knowledge, and developing home grown solutions for sustainable growth.”
The report, now in its fourth year, outlines the views of high net-worth individuals (HNWIs) from across the Gulf Cooperation Council (GCC) on local and global economies as well as the main elements that drive their investment decisions.
For the purposes of this study, HNWIs are defined as individuals with $2 million or more in investable assets.
Interviews with participating HNWIs were conducted face to face between September and December 2016, with the majority completed before the US election result and the fall of Eastern Aleppo in Syria.
At a global level, HNWIs in the GCC remain pessimistic about the current condition of the economy. Almost half (47%) think that the situation is worsening and just 15% say the situation is improving. This is broadly in line with the results of our 2016 survey. Amongst the 47% of HNWIs who say the global economic situation is worsening, political instability, conflict and threat of terrorism (72%) is the most commonly cited reason for this, as it was in 2016 (53%).
HNWI’s have polarised views of the GCC’s current economic situation, with a marginal increase in those thinking the economic situation is improving, from 17% last year to 20% this year, as well as an increase in negativity, with 44% say that it is worsening compared to 36% in 2016. One in three (36%) say it is staying the same (down from 47% in 2016).
At a country level, the views of HNWIs on the economic situation in their own country vary significantly across the GCC. Views are most positive in the UAE (69% say economy is improving) and Qatar (42% say economy is improving), and least positive in Kuwait and Saudi Arabia. HNWIs in Oman are most likely to feel that the economic situation in their country is worsening (75%). This pattern is consistent with 2016.
There is a strong sense of optimism about the regional and global economy over the next five years. 76% of respondents are at least somewhat optimistic about the economic prospects for the global economy over the next five years. Despite this optimism, the outlook appears to be more cautious than in 2016 and 2015, with a continued fall in those who say they are ‘very’ optimistic, and an increase in those saying they are ‘somewhat’ optimistic. Amongst the 76% of HNWIs who are optimistic about the economic prospects for the global economy for the next five years, positive economic signs and stability (26%) is most frequently cited as the reason for this view.
A similarly high proportion (75%) say that they are optimistic about the economic prospects for the Gulf region over the next five years – slightly down compared to previous years. The proportion of HNWIs who say that they are ‘very’ optimistic about prospects for the Gulf region shows a notable decline from last year (20%, down from 40% in 2016). Over half say they are ‘somewhat’ optimistic about future prospects (55%, up from 43% in 2016).
Regional HNWIs continue to prefer investing in their own business and remain focused on growth over preservation.
Half of HNWIs (50%) say the global economic situation has changed their approach to investing, with the most commonly cited impact being a more cautious approach and preference for lower risk (42%).
A similar proportion (49%) said that local economic conditions have changed their approach to investing and investment decisions. Amongst this group, the most commonly cited impacts are increased investment in new/ growing sectors (20%), and more caution when making investment decisions due to losses (20%). Almost two in ten (18%) say they have discontinued projects due to local economic conditions.
Over a third of HNWI respondents say their investment decisions have changed ‘a great deal’ due to movements in the price of oil (37%) and regional structural reform (37%).
More than two in five (45%) HNWIs say that the geopolitical situation in the Arab region has changed their approach to investing and the investment decisions they make.
The distribution of HNWIs’ wealth is broadly similar to previous years, with wealth most likely to be allocated to their own business (34%). However, there does appear to be a continued shift since 2015 towards HNWIs having a greater share of their wealth in cash/deposits (27%, up from 17% in 2015) and away from real estate as an investment (15%, down from 30% in 2015).
Looking ahead, half of HNWIs say that they plan to increase their investment in cash deposits (51%) and their own business (50%) in the near future. Approximately a quarter of HNWIs say they plan to increase the share of their wealth in direct investment/private equity (28%) and gold/precious metals (28%).
Preference for local investment remains, with the majority of HNWIs keeping investments closer to home, rather than being global investors, due to confidence in the stability and security of the local economy. However, we have seen an increase year-on-year since 2015 in global investors, principally driven by a desire for diversification and risk management.
Meanwhile, 80% of HNWIs say that they are focused on growing their wealth, rather than preserving it. Amongst the 80% of HNWIs who are focused on growing their wealth, the main reasons cited for this are to provide reassurance and security for themselves and their family (33%) and to fulfil personal ambitions (28%). Other reasons mentioned frequently include continuing to work on more/larger projects and the expansion of businesses/activities, the report said.