Deutsche Bank has warned that the Middle East must expect higher inflation or a rise in interest rates as a consequence of trillions of dollars of central bank monetary intervention spilling over from developed markets.
Anshu Jain, the co-chairman of Deutsche Bank's board and executive committee, also told business leaders in Dubai that the next phase of the global economic downturn could hinge upon what triggers central banks to start raising interest rates, currently at historic lows.
"It's an issue that really concerns us. There's never been a period of such unprecedented liquidity injections, and what'll happen when that trigger comes?" he said.
"The slightly worrying answer is nobody really knows. History hasn't given us that chapter yet. We're writing it."
The Federal Reserve in the United States and the European Central Bank have all pledged to step up bond-buying programmes with potentially unlimited sums of capital in an effort to stabilise economies that are still showing signs of fragility after the global financial crisis.
The Bank of England and Bank of Japan have also increased quantitative easing since the start of this year. Deutsche Bank, Germany's biggest lender and one of Europe's largest investment banks, expects interest rates in developed markets to remain low "for some time".
"My concern for the US and this region as well is that this money tends to flow into very specific asset classes," such as real estate, said Mr Jain. "We're seeing some of that in our home market, Germany, as well, but we haven't seen core inflation yet."
If widespread increases in consumer prices materialise, authorities may be unable to contain rising core inflation for a sustained period of time and would have to choose between boosting job creation and containing inflation. This would have an impact on dollar-pegged economies such as the UAE and other Arabian Gulf states.
With the exception of Kuwait, GCC central banks are obliged to import US monetary policy because of their currencies' dollar pegging, giving them limited scope to tighten money supply.
Western policymakers would be faced with a "very pernicious problem", added Mr Jain, because they would "have to choose between two evils", either lower job creation or higher consumer prices.
In the meantime, regulators' response to the financial crisis was doing little to address the issue of global banks becoming "too big to fail" - that is, lenders whose systemic importance is such that taxpayers are in effect forced to rescue them in the event of their collapse.
"Regulators want banks to get smaller and more competitive. The reverse is happening," said Mr Jain. He expected that regulators were forcing a greater degree of consolidation on to the banking sector, partly linked to higher capital requirements brought about by the stringent Basel III rules, which compel banks to build up bigger capital buffers.
UBS has announced layoffs equivalent to almost a sixth of its workforce as the Swiss bank divests from operations such as bond trading that bring increased capital requirements. Credit Suisse also restructured its global investment banking operations this week, in a move said to be "in alignment with the new regulatory reality".
With increased consolidation, the number of global banks could fall, said Mr Jain. "A number of our peers are signalling a desire to step off the world stage. I think by the time we're done, no more than five or six global universal banks will be left standing.
"Clearly Deutsche Bank wants to be one of them. But we're not taking our position for granted."
ghunter@thenational.ae
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
The specs
AT4 Ultimate, as tested
Engine: 6.2-litre V8
Power: 420hp
Torque: 623Nm
Transmission: 10-speed automatic
Price: From Dh330,800 (Elevation: Dh236,400; AT4: Dh286,800; Denali: Dh345,800)
On sale: Now
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Kanguva
Director: Siva
Stars: Suriya, Bobby Deol, Disha Patani, Yogi Babu, Redin Kingsley
UAE SQUAD
Omar Abdulrahman (Al Hilal), Ali Khaseif, Ali Mabkhout, Salem Rashed, Khalifa Al Hammadi, Khalfan Mubarak, Zayed Al Ameri, Mohammed Al Attas (Al Jazira), Khalid Essa, Ahmed Barman, Ryan Yaslam, Bandar Al Ahbabi (Al Ain), Habib Fardan, Tariq Ahmed, Mohammed Al Akbari (Al Nasr), Ali Saleh, Ali Salmin (Al Wasl), Adel Al Hosani, Ali Hassan Saleh, Majed Suroor (Sharjah), Ahmed Khalil, Walid Abbas, Majed Hassan, Ismail Al Hammadi (Shabab Al Ahli), Hassan Al Muharrami, Fahad Al Dhahani (Bani Yas), Mohammed Al Shaker (Ajman)
SPECS
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The Travel Diaries of Albert Einstein The Far East, Palestine, and Spain, 1922 – 1923
Editor Ze’ev Rosenkranz
Princeton
COMPANY PROFILE
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded
Mountain Classification Tour de France after Stage 8 on Saturday:
- 1. Lilian Calmejane (France / Direct Energie) 11
- 2. Fabio Aru (Italy / Astana) 10
- 3. Daniel Martin (Ireland / Quick-Step) 8
- 4. Robert Gesink (Netherlands / LottoNL) 8
- 5. Warren Barguil (France / Sunweb) 7
- 6. Chris Froome (Britain / Team Sky) 6
- 7. Guillaume Martin (France / Wanty) 6
- 8. Jan Bakelants (Belgium / AG2R) 5
- 9. Serge Pauwels (Belgium / Dimension Data) 5
- 10. Richie Porte (Australia / BMC Racing) 4
Emergency
Director: Kangana Ranaut
Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry
Rating: 2/5
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
How to avoid crypto fraud
- Use unique usernames and passwords while enabling multi-factor authentication.
- Use an offline private key, a physical device that requires manual activation, whenever you access your wallet.
- Avoid suspicious social media ads promoting fraudulent schemes.
- Only invest in crypto projects that you fully understand.
- Critically assess whether a project’s promises or returns seem too good to be true.
- Only use reputable platforms that have a track record of strong regulatory compliance.
- Store funds in hardware wallets as opposed to online exchanges.
More from Neighbourhood Watch:
If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.
When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.
How to get there: Emirates currently flies from Dubai to Orlando five times a week.
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.”