Invesco Asset Management Limited today unveiled the findings of its inaugural Invesco Middle East Asset Management Study. This regional study is the first of its kind and reveals a fascinating insight into the complex and sophisticated investment habits of this continually evolving region. The company, who opened its Dubai office in 2005, has been working with Middle East clients for decades, offering financial institutions and investment professionals access to global investment expertise. Surveying the attitudes and behaviours of both institutional and retail markets across the six Gulf Co-operation Council (GCC) countries, the study revealed a number of key findings:• There is currently a consistently high demand for emerging markets across all companies and territories• Institutional and retail investors in the GCC have short time horizons compared to global benchmarks• Investor location within the GCC has a strong influence on exposure to investment sectors
Interestingly, the study also indicated that both the institutional and retail market are becoming increasingly risk averse.
Nick Tolchard, Head of Invesco Middle East commented: “The Middle East is often portrayed as a homogenous region; this report clearly shows this is not the case, though there are some surprising similarities. The influence of investor location over asset allocation makes it quite clear that the Middle East is a highly diverse investment region.”
He continued: “We believe that this diversity is explained by access to investment products, which varies across the region. Certain markets, such as Saudi Arabia, have restricted access to international investments whereas others, such as the UAE, are dominated by offshore life wrappers with large international fund ranges.”
Investor type also plays a key role in asset allocation, according to the study. In the growing retail market, preferences vary according to distributer. Private client portfolio managers favour global equities and alternative assets, while retail banks prefer local equities and cash and IFAs opt for global equities and cash.
On the institutional side, preferences are even more diverse:o Sovereign Wealth Funds prefer alternative investments (private equity and hedge funds)o Institutional investors tend to invest in mainstream asset classes (equities, bonds and cash) o Corporates (commercial banks and diversified financial services) prefer local over international assets. o Asset managers prefer property
Commenting on these asset allocation preferences, Nick Tolchard said: “Sovereign Wealth Funds’ preference for private equity and hedge funds may align to opportunistic investment strategies to exploit any short-term market volatility and below average allocations to local securities and commodities is expected given that the source of funding for Sovereign Wealth Funds (government revenue) is heavily dependent on commodity prices and the performance of the local economy.”
In addition, one of the most striking findings is the universal preference for emerging market assets. Across all participants 82% of respondents forecast exposure to emerging markets over the next 3-5 years compared to 30% for North America, 14% for Europe and 8% for Japan. The key driver for this appears to be simply that GCC investors expect returns to exceed those in developed markets.
The Retail and institutional respondents in the GCC are also unified by their perceptions of change in risk appetite – they have indicated that 79% of institutional and 70% of retail investors have changed their attitude to risk in the last six to twelve months and in both cases, more investors have become increasingly risk averse.
In addition, the study indicated that the respondents also share similar very short-term investment time horizons, 38% of retail respondents have a time horizon of less than a year compared to 33% in the institutional market. Of those surveyed, only 12% of institutional respondents have an investment horizon beyond 5 years, significantly below global comparatives for institutional markets.* Invesco believes that the short retail time horizons in the retail market can be explained by the transient nature of retail expatriate clients, investment losses during the global financial crisis and the coverage on Dubai’s debt restructuring. Looking forward it expects retail time horizons to lengthen as markets stabilise, but to remain shorter than global retail benchmarks.
Nick Tolchard explained: “Perhaps the most surprising finding was the short term and highly volatile investment attitudes in the institutional sector. However, this could be explained by nimble and fast moving investment behaviour of Sovereign Wealth Funds in the GCC region, in contrast to other institutional markets which are typically dominated by large insurance and pension funds managing a high proportion of their assets against long-term liabilities.”
He concluded: “The Middle East is a growing investor force in the world and we see this research as part of our strategic commitment to understanding the perspective of investors, as well as the investment and savings culture of the Middle East. We intend to carry out this research on a regular basis, monitoring the retail investment market as it continues to grow, and learning even more about the behaviour and preferences of the highly sophisticated institutions operating in the GCC.”