The global economy is in for another bumpy ride this year, with even Chinese and Indian business leaders painting a gloomy picture.
Nearly half of the world's leading chief executives polled in a survey by PricewaterhouseCoopers (PwC), highlighted on the eve of the World Economic Forum, believe there will be a further decline in the economic situation in the next 12 months.
Evaporating confidence is particularly marked in China and India, the two powerhouses of the Asian economy, according to the international accounting firm.
Sentiment among Chinese business leaders fell from 72 per cent last year to 51 per cent this year, the poll found, the biggest decline in the Asia Pacific region.
In India, there was also a steep decline in confidence, with only 55 per cent of bosses "very confident" of revenue growth, compared with 88 per cent last year. That slump is India's biggest in six years, PwC reported.
"CEO confidence is decidedly down as they deal with the aftershocks of the recession. They are disappointed with the course of the global economy and the pace of recovery," said Dennis Nally, the chairman of PwC International, at a meeting in the exclusive Steigenberger Grandhotel Bélvèdere in Davos as participants gathered for the business bash in the Swiss ski resort.
"The optimism that had been cautiously building since 2008 has begun to recede.
"The ongoing debt crisis in the European Union, along with other lingering economic uncertainties, have deflated confidence in business growth around the world. Even the fast-growing economies of Asia and Latin America are not immune to the realities of continued economic stagnation, belying the notion that the global economy has decoupled. CEOs all round the world are worried about the health of the global economy."
One bright spot in the gloom detected by PwC was in the Middle East and North Africa (Mena), where more chief executives reported they were going to expand their workforces in the coming year.
Even so, Mr Nally said executives in the Mena region were still worried about the problems of excessive regulation of their businesses, ongoing problems with corruption, and concerns about the availability of talent in local workforces.
"It is ironic that as the economy struggles, shortages of key personnel are having an impact on the way companies do business. CEOs are having difficulties finding and retaining skilled people in their industries and turnover in emerging markets especially is high," he said.
But he also said the wholesale withdrawal of foreign businesses from the Mena region some analysts had expected when the Arab Spring protests began a year ago had "not taken place on the scale some had feared. We simply have not seen it."
In the US, chief executives mirrored the global view and were also cautious. Still, about 41 per cent were upbeat about short-term growth, despite concerns about the US debt ceiling and gridlock in Washington ahead of the presidential elections this autumn.
"It really does suggest that maybe the US economy is better or stronger than what some believe," Mr Nally said, adding US companies had grown used to being patient with policymakers in an election year.
"Europe is really a short-term issue though," he said. "I don't think you have 12 months to keep this debate going on how to deal with the debt crisis."
The PwC survey was conducted among 1,250 chief executives in 60 countries in the last quarter of last year. On the upside to its overall negative tone, Mr Nally said nearly three times as many chief executives were confident for the prospects of their own companies' growth prospects than they were for the global economy, which PwC suggests "CEOs believe they have learnt how to manage through difficult and volatile economic times".
Some 40 per cent believe their own companies will benefit from revenue growth in the coming year, while more than half expect to increase headcount.
fkane@thenational.ae
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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.”
