Wealthy clients in the UAE have shifted into wealth preservation mode, scaling back expectations of returns on their portfolio as uncertainty generated by lower oil prices and a higher dollar looks set to continue into 2016, private bankers say. “Most clients are looking to conserve wealth in the current scenario as well as to generate a stable income stream,” says Suvo Sarkar, Senior Executive Vice-President and Group Head for Retail Banking and Wealth Management at Emirates NBD.
Crude oil is trading at around $46 (Dh169) — less than half its value in June 2014. A stronger dollar is also prompting some investors to tweak their portfolios. Many clients have adopted a “hold-and-hope” approach while they watch the markets over the next three-to-six months, explains Matthew Footner, Vice-President at wealth management firm Globaleye.
“At the moment it’s about wealth preservation as opposed to wealth accumulation,” he says. “In practice, this means they are looking into very low-volatility, very low-risk corporate bonds, government bonds that are producing a yield of perhaps two per cent, 3 per cent if they are lucky, just for the short term.”
As well as the impact of lower oil prices and a stronger dollar — both of which may hamper growth in the UAE and other Gulf states — the war in Syria is also creating geopolitical uncertainty. “There is a lot of volatility in the world at the moment and people are taking a short-term view of ‘Let’s hold off, let’s not invest it directly into the market at the moment,’” Footner says.
Sarkar agrees. “The lower oil prices and a stronger dollar are currently hurting investor sentiment as both factors are negative for the growth of the region. Given the uncertainty in global and regional markets, clients are naturally risk averse and looking to preserve their capital by investing into investment grade regional/global bonds, cash and near-cash instruments.”
He predicts this trend will continue into 2016. The desire for low-risk, low-volatility products has also given sukuk products a boost – even among non-Muslim investors, explains Renoy Kundukulam, Head of Priority Banking at Noor Bank. “With the growth of Islamic products, wealthy GCC investors and money managers have redirected investments into sukuk, which has given a fair amount of stable income, with lower volatility, thus to an extent avoiding any local investment options that could get affected by lower oil prices,” he says. “Even non-Muslim clients [seeking] factors such as security, returns, liquidity while investing have started noticing that more can be obtained from Sharia-compliant products.”
Wealthy clients are still inclined to invest their money close to home in the UAE and the GCC, bankers say. The number of people who prefer to keep assets closer to home has increased to 83 per cent, up from 64 per cent in 2014, says Kundukulam. “This is driven by increased confidence in the region’s economic stability and security and a desire to have greater oversight over their investments.”
UAE and GCC equities as well as real estate investments are among the preferred assets for the UAE, explains Rohit Walia, Executive Chairman of Alpen Asset Advisors.
Lower property prices in the UAE mean investors are postponing acquisitions. “While UAE clients continue to prefer real estate investments, they have held back major investment decisions in hope of lower price levels,” adds Walia.
Wealth clients with a higher appetite for risk have profited from the stronger dollar by moving into European and US equity markets. “Despite falling oil prices, wealthy GCC investors’ appetite for global investments has increased after a difficult 2013 and 2014,” explains Kundukulam. “They may have less appetite for risks far from home, but they continue to invest where they see good returns and likely growth.”