Despite the falling oil price and geopolitical instability, the GCC remains an attractive investment destination for high net-worth individuals (HNWIs), a report said, adding that 76 per cent prefer to keep their assets close to home.

However, there is a clear element of caution lingering amongst investors, according to the 2016 GCC Wealth Insight Report published by Emirates Investment Bank, a client-focused, independent private and investment banking boutique headquartered in Dubai, UAE.

For the purposes of this study, HNWIs are defined as individuals with $2 million or more in investable assets.

Khaled Sifri, CEO of Emirates Investment Bank, said, “With the global economy currently going through a period of significant volatility and with depressed oil prices, it comes as no surprise that this year’s report is more sombre than in previous years.”

“However, confidence in markets such as the UAE and Qatar remains very strong and, when taking a longer-term view, HNWIs say they are optimistic about the Gulf region as a whole. Consistent with previous years, the majority of GCC HNWI investors prefer to invest in the region over global markets, despite any geopolitical concerns.

“In this year’s report, we see a clear shift towards conservative investments, with GCC HNWIs appearing to be more risk averse and adopting a defensive approach to their wealth allocations. This is evidenced in the notable shift this year towards cash and deposits as well as gold and precious metals.

“At Emirates Investment Bank, we advise our clients that the best way to protect and grow their wealth is through diversification – both by asset class and geography. Historically, investors from the GCC prioritised growth and allocated a greater portion of their wealth to investing in their own businesses for future generations. However, as regional economies mature, we should see an increasing interest in alternative investment opportunities as HNWIs seek to construct more balanced portfolios,” he added.

Economic sentiment

Views of the economic situation at both a global and a Gulf level are more negative than last year, the report said.

At a global level, just 14 per cent say that the current economic situation is improving (down from 31 per cent in 2015), while almost half (47 per cent) think that the situation is getting worse. It is notable that the global economic situation has underperformed expectations from last year’s report, when 52 per cent of investors felt the global economy one year later would be stronger and just 8 per cent believed the situation would get worse.  The reality is a definite negative shift in sentiment over the past 12 month, the report said.

When asked about the GCC economy, just 17 per cent say that it is improving compared to 55 per cent in 2015. There has also been a fourfold increase in the proportion of HNWIs who say that the economic situation in the region is worsening (36 per cent, up from 9 per cent last year).

While HNWIs are significantly more likely to say that the regional economy is worsening, there is confidence that the situation will improve over the long-term, with the majority of HNWIs optimistic about the economic prospects for both the global economy and the GCC region over the next five years (77 per cent optimistic about global economy, 83 per cent optimistic about GCC economy).

Looking at the individual countries of the GCC, the report asked HNWIs for their views on the economic situation in their own country. The most positive responses were from the UAE and Qatar, where 58 per cent and 42 per cent, respectively, said they felt the situation was improving (89 per cent and 83 per cent, respectively, in 2015).

HNWIs were least positive in Kuwait, Bahrain and Saudi Arabia, where just 8 per cent of respondents in each country said they felt the situation was improving. HNWIs in Oman are most likely to feel that the economic situation in their country is worsening (67 per cent). Saudi Arabia has seen the biggest shift in sentiment, with 59 per cent of respondents in the 2015 report saying that they felt their economy was improving.

Wealth decisions and financial allocations

The report suggests that the negative sentiment towards the current situation of both the global and regional economies has affected investment and banking decisions for the majority of surveyed HNWIs. Forty-three per cent of HNWIs surveyed say the global economic situation has affected their banking and investment decisions, which represents a significant increase in relation to 2015 (28 per cent).

Amongst this group, the most commonly cited impact is that investors are more cautious and seeking lower risk (56 per cent) – which is mentioned twice as frequently than in 2015. One in five (21 per cent) say that it has prompted them to reduce (or stop) their global investment exposure. Meanwhile, 51 per cent of HNWIs surveyed say that local economic conditions have affected their banking and investment decisions, an increase from 33 per cent in 2015.

The suggestion that HNWIs are increasingly cautious is supported by the 2016 report showing greater current allocations by HNWIs to cash/deposits (up to 24 per cent in 2016 from 17 per cent in 2015), and gold and precious metals (up to 9 per cent in 2016 from 5 per cent in 2015).  Consistent with previous years, the largest average allocation is to their own businesses (27 per cent).

When taking a longer-term view, seven in ten HNWIs (69 per cent) say that they plan to increase their investment in their own business in the near future. Meanwhile, six in ten (62 per cent) intend to increase their investment in cash/deposits, which suggests that HNWIs expect to remain somewhat cautious in the years to come.

HNWIs were most negative towards stocks, with just 20 per cent of HNWIs say they plan on increasing their allocations to stocks, with 33 per cent saying they plan on decreasing their allocations.

HNWIs’ planned allocation of wealth in the future shows some interesting changes in relation to last year’s report. There is a notable increase in planned allocations to direct investments / private equity (52 per cent, up from 31 per cent in 2015) and a significant decrease in planned allocations to real estate (51 per cent, down from 81 per cent in 2015), which suggests that HNWIs are increasingly interested in diversifying their portfolios away from the more traditional asset classes towards selective business ventures.

Similar to the 2015 report findings, a significant majority of HNWIs (76 per cent) prefer to keep their assets closer to home. Amongst HNWIs who prefer to keep their assets close to home, almost half (47 per cent) say this is because they are confident that investments in the region are secure. Other reasons cited include the ability to oversee investments (18 per cent) and familiarity with the risks and regulations (16 per cent).

For the 24 per cent of HNWIs who are global investors, the most commonly given reasons for this relate to diversification and risk management, with HNWIs seeking to protect their assets in the context of instability in the region (42 per cent). Other reasons include a desire to take advantage of global opportunities, having legacy investments overseas, and having a strong knowledge of these markets.

Despite the sense of greater caution, a clear majority of HNWIs (86 per cent) say that they are focused on growing their wealth, rather than adopting a position of consolidation. – TradeArabia News Service