Government regulations are the key-determining factor for the success of retail and institutional asset management in the Arab world, according to Executive Managing Director of Shuaa Capital, Ziad Makkawi.
He also estimates that in the next seven years the industry will generate cumulative revenues of $1.8 billion. “Given the region's demographics, the increasingly sophisticated nature of regional investors and ongoing liberalization and regulatory reform, the industry is set to grow substantially,” said Makkawi.
Speaking to an international audience in Bahrain, Makkawi noted that currently the total value of mutual funds in the region is only 0.02 percent of $10 trillion global industry and disproportionately small compared to emerging market peers and lower than the region's 1.3 percent contribution to global gross domestic product (GDP).
“Currently only one percent of local savings are deployed in regional mutual funds with equity funds capturing less than 1.3 percent of a $160 billion GCC market capitalization,” said Makkawi adding that only 20 percent of the $10.5 billion worth of mutual funds managed in the GCC is invested locally.
Money markets funds show similar potential, he said, noting that only Saudi Arabia has to date managed to build a business in this field, but even there it is proportionately much smaller, as a percentage of deposits, than the more developed markets of the US and Europe.
However, economic liberalization and associated regulatory developments will change this, said Makkawi noting that already Saudi Arabia, Qatar and Dubai have draft bills aimed at improving the regulation of their capital markets and asset management businesses while Bahrain is slightly ahead, looking to carve out a niche market in Islamic products and services.
Makkawi predicted that by 2010, asset managers focused on the GCC should expect total pooled assets invested in the region to reach $76 billion with total mutual funds amounting to around $38.8 billion, 70 percent of which will be invested in equities. Money Market funds will capture 15 percent of the $275 billion in total bank deposits of which a large percentage will be invested in Islamic liquidity instruments.
Public pension funds will grow to $134 billion with an estimated 50 percent invested locally and 20 percent managed privately. The insurance industry will also likely outsource the management of a growing share of its estimated six billion dollar balance sheet.
Shuaa Capital was established in 1979 as an investment house focused on investing and promoting investment into the Arab World. It has since pursued a strategy based initially on private equity investments and proprietary trading in Arab listed securities and subsequently on investing in the UAE and GCC markets. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
