Middle East investors are shifting their focus away from assets in Europe and the United States and towards the East, according to Pictet Asset Management.
“From the Middle East clients’ perspective, what we have seen on the back of the slump in oil prices [is that] there is definite interest in economies that have been typically driven by oil imports and are benefiting from lower oil prices, such as emerging markets in Asia and Japan,” said Bharat Pratap, the director of business development for the Middle East and India at the private bank.
He said clients were trying to cut exposure to cash in euros and pounds sterling because of unattractive interest rates for those currencies.
Pictet, with a representative office in the UAE since 2007, is advising Middle East clients to invest in Japanese, European and Asian equities, which will give “single-digit returns”, and avoid US and Latin American stock markets, which will have near-zero returns, according to Luca Paolini, Pictet’s chief strategist.
“We think earnings are a little bit too high [in the US]. The strong dollar is going to have impact on profitability of companies,” said Mr Paolini.
Over the past year the US dollar is up 16 per cent against the euro, for example.
The strong dollar will push Arabian Gulf clients to invest abroad because the region’s currencies, except the Kuwaiti dinar, are pegged to the dollar. The Kuwait dinar is pegged to a basket of currencies.
“Because the currency is pegged to the dollar it makes sense to start now to diversify into non-US dollar assets, especially in Asia and Japan,” said Mr Paolini.
In terms of fixed income, Pictet is advising clients to focus on debt in emerging markets.
The bank plans to double its business in the Middle East in the next three to five years.
“The Middle East is a very promising part of the world largely because it has got very large sovereign wealth funds and as well as pension funds, which are significant even from a global standpoint,” said Mr Pratap.
“Our [Middle East] growth is much more than we would have expected.”
Private wealth in the Middle East and Africa is forecast to grow at a compound annual growth rate of 6.5 per cent to reach US$7.2 trillion by the end of 2018, according to a Boston Consulting Group report from last year.
Mena private wealth grew 11.6 per cent in 2013 to reach $5.2tn that year, despite the political conflicts engulfing the region. High savings and strong GDP growth in the Gulf countries helped to boost private wealth in 2013, where equities were the strongest contributor to wealth, in line with global trends.
The bank revealed for the first time on Friday its full-year profit, which reached 459 million Swiss francs (Dh1.81 billion) last year and assets under management which amounted to 435bn francs at the end of December.
dalsaadi@thenational.ae
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