Ancient Silk Road revived with soaring trade volumes

Dubai: The so-called New Silk Road continues to fascinate policymakers and analysts as rising Asian economic power seals its imprint on this century.

This "east-east" corridor, named after ancient trade routes linking Asia with the Middle East, saw trade volumes quadruple over the past decade.

From Chinese tourists shelling out on luxury goods in Dubai to Asian interest in regional oil and petrochemicals, Asia is now writ large into Gulf business plans. The Middle East unit of Industrial and Commercial Bank of China, the country's largest bank, saw lending, deposits and profits all more than double last year amid booming demand for trade financing between the two regions.

One of the first Gulf outfits to take seriously the opportunity presented by emerging Asia was Kuwait China Investment Company, formed in 2005 with $300 million (Dh1.1 billion) in capital, including a 15 per cent stake held by Kuwait's sovereign wealth fund.

Originally focusing on bilateral investment between Kuwait and its increasingly vital energy customer China, the company has since broadened its remit across emerging Asia, excluding Japan, and begun to manage another $200 million to $250 million for outside investors.

It is now rebranding as Asiya Investments and moving staff to Hong Kong, where a 25-strong team will manage the company's main investment function, alongside a smaller Dubai office dealing with advisory work and new clients.

More investors

"We have reached an inflection point, and we will now look to bring in more investors," says Ahmad Al Hamad, the group managing director who co-founded the company alongside well-known Kuwaiti investors such as the Al Kharafi and Al Ganem families.

The company has put two-thirds of its money to work in public markets, with the remainder reserved for the riskier business of direct investments. Nine of its 13 Asian equity funds have outperformed benchmarks since their inception, it says.

With global banks building dedicated local teams to service the Gulf-Asian investment flows, Asiya hopes its regional heritage will gain the trust of Arab investors, who remain reticent about moving allocations eastward.

Gulf sovereign wealth funds are estimated to have allocated only 5 per cent of their assets to emerging Asia, with other investors holding even less.

"Investors are still overly attracted to their comfort zone of western and Japanese investments but, in terms of growth expectations, they are grossly underinvested," says Mohab Mufti, who will run Asiya's Dubai office.

But just as the development of the New Silk Road is a gradual process, Asiya sees great potential in shepherding a realignment of Arab money away from the west into Asia.

Capital flow

Hamad says that if investors raise their allocations in Asia to a more healthy 20 per cent, capital flow from the Middle East to the region over the next decade could reach $300 billion, given an average oil price of $80 a barrel. "That's significant, and we also want to position ourselves on the bilateral flow back to the region," he says.

Asiya will also seek advisory mandates for Asian companies seeking to expand in the Middle East.

Many Chinese and Asian companies are choosing Dubai as a launch pad for the Gulf and Middle East. Asian ones are also choosing the emirate as a hub to service sub-Saharan Africa, thanks to burgeoning trade and aviation links. "Dubai has emerged as the hub of this New Silk Road, linking entire continents," says Afshin Molavi, senior Middle East adviser at Oxford Analytica. "Chinese traders use Dubai as a hub for Africa, and African traders launch into Asia via Dubai."

— Financial Times