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Last year, the UAE’s financial wealth grew by 20 per cent, compared to 11 per cent globally. Image Credit: WAM

Dubai: The UAE’s financial wealth will grow from $700 billion currently to $1 trillion during the 2021-2026 period, according to a new report by Boston Consulting Group (BCG).

“The year 2021 has established UAE as a clear winner in the GCC and among one of the fastest growing markets globally,” said Mustafa Bosca, Managing Director and Partner at BCG, during a virtual call on Wednesday.

Last year, the UAE’s financial wealth grew by 20 per cent, compared to 11 per cent globally. About 41 per cent of the country’s wealth was derived from ultra-high net worth (HNW) individuals who are worth more than $100 million – this is expected to grow to 43 per cent in 2026.

Individuals with wealth ranging above $1 million held 28 per cent of the UAE’s wealth in 2021 and this is expected to remain the same by 2026, said BCG in its report.

“We believe that UAE is very well positioned to win in both crypto and climate related opportunities,” said Bosca. “We already see major digital asset companies and exchanges setup in the UAE, thanks to the crypto friendly regulatory environment and an emerging regulatory setup.”

COP 28, the global climate change conference set to be held in UAE in 2023, will further establish the country as a destination for sustainable investments, said Bosca.

Crypto potential

BCG’s report found that nearly 80 per cent of the clients surveyed will consider increasing their crypto holdings if wealth managers offered advisory and education services. Two-thirds of clients who sourced their crypto investment with third parties said that they did so because they didn’t think their wealth managers offered such services.

“As it stands right now, the wealth managers both globally and in the region haven’t really formulated their strategy strongly to benefit from this,” said Bosca. “We encourage them to do so and take the growing share of people allocating their assets towards these alternative venues.”

Meanwhile, the rising volatility in the crypto market is prompting several UAE and Gulf investors to exit the market. In an economy affected by high inflation and rising interest rates, investors are becoming more selective about their investments.

“We do see some scaling back at the moment, but going forward, we do believe that this will be an important area of opportunity for banks and wealth managers in the GCC and globally to tap into,” said Bosca. “We are seeing exponential type growth in crypto assets and we believe that this will continue to grow rapidly in the coming years.”

BCG said that around 75 per cent of institutions have already bought or are planning to buy crypto digital assets. Crypto wallet holdings have grown by about 30 times in the last two years, with NFT marketplace OpenSea seeing trades worth $3.3 billion.

Equity is king

Despite the hype around crypto, most investors in UAE prefer investing in equities and debt.

About 50 per cent of the wealth generated in UAE goes into equities, followed by 42 per cent into currency and deposits. About 2 per cent is allocated to debt securities and an even smaller percentage on life insurance and pensions.

“We expect the share of equities to continue to grow, and we’ll go from around 50 per cent at the moment to more than 56 per cent over the next five years,” said Bosca. “We expect people to reallocate their portfolios from currency and deposits into equities and bonds.”