About 46 per cent of UAE investors expect inflation to pick up over the next 12 months while 92 per cent believe it will affect their portfolios, according to new research by Switzerland-based investment bank UBS.
The sentiment corresponds with investors globally, with 46 per cent saying that inflation will rise over the next 12 months and they plan to adjust their portfolios by buying more stocks and property assets, according to UBS's quarterly global Investor Sentiment survey.
The Swiss bank surveyed 2,999 investors with at least $1 million in investable assets and 1,201 business owners with at least $1m in annual revenue and at least one employee other than themselves from June 23 to July 12 across 15 markets, including China, Germany, Singapore, Switzerland, the UAE, the UK and the US.
Globally, central banks and governments have pumped $25 trillion into their economies to soften the blow of the pandemic. However, the flow of money has raised concerns about rising inflation, with economists expecting upward pressure on prices during the summer as countries reopen amid easing Covid-19 restrictions.
“Investors in the UAE are looking for investment opportunities to protect their purchasing power against inflation, with many eyeing real estate and sustainable investments,” said Ali Janoudi, head of wealth management Middle East and Africa at UBS.
“They are also optimistic about their own region’s economy. We believe a continued risk-on stance in equities is warranted and sustainable investing is our preferred approach to investing globally.”
To counter inflation, 35 per cent of UAE investors said they are interested in property while 34 per cent are considering sustainable investments and 32 per cent are considering hedging their portfolios, the survey found.
Additionally, 83 per cent of UAE investors have expressed confidence in the stock market and 47 per cent said they intend to increase their allocation to stocks in the coming six months.
Other top concerns for UAE investors include Covid-19 (66 per cent), climate change (62 per cent) and cyber security (61 per cent), the UBS survey said.
Investors in the UAE are looking for investment opportunities to protect their purchasing power against inflation, with many eyeing real estate and sustainable investments
Ali Janoudi,
head of wealth management Middle East and Africa, UBS
“Although we expect the recent rise in inflation to ease, the outlook for inflation remains uncertain and therefore building inflation protection into portfolios is an appropriate step for investors to be taking now,” said Tom Naratil, president of UBS Americas and co-president of UBS Global Wealth Management.
“This includes investing in commodities, private market infrastructure and stocks with pricing power, as these areas tend to perform better in an inflationary environment and will help to preserve purchasing power over the long term.”
About 35 per cent of global investors plan to add stocks while 33 per cent plan to add precious metals, 32 per cent plan to make sustainable investments and 32 per cent are looking at property, the UBS survey found.
Although inflation is a concern, seven in 10 investors are optimistic about their own region's economic prospects over the next 12 months while 67 per cent are bullish are the performance of the stock market over the next six months, the study found.
Globally, business owner optimism also remained high but dipped slightly by three percentage points, with 77 per cent remaining positive about their own business over the next 12 months.
Plans to hire also fell, with 35 per cent planning to actively recruit employees, compared with 37 per cent in the first quarter, according to UBS.
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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.”
