News Column

Prospectors seek rewards on the Alpine trail

June 7, 2014

Andrew Shouler Financial Correspondent

The rain lashed down as the turboprop flight landed gingerly the other day in a windswept Geneva, nestled in the corner of Switzerland, a world away from the Gulf, where temperatures are making their ascent towards seasonal extremes. Yet it's here that a lot of Middle East money finds its way, a haven of private banking for high-net-worth (HNWI) and ultra-HNWI investors.

The slight feeling of incongruity was replicated in the fact of Etihad Regional plying its trade in middle Europe, with a handful of passengers enjoying virtually a private excursion from Belgrade on this occasion. The Abu Dhabi parent bought into a budget carrier called Darwin Airline several months ago, and evidently is offering a superior service to those who, like this passenger, had merely bought tickets on a regular, scheduled flight over the Alps.

For those engaged with the famed wealth managers of this locale, a similarly impressive offering is presumably expected, which may have been delivered so far this year if their funds were sufficiently invested in the stocks and bonds of developed markets. Whether the second half of the year will be quite so lucrative could be more of a challenge.

As ever, though, deciding how to chase further investment rewards depends considerably on the appetite for risk, which is fundamentally a personal thing, rooted in some combination of circumstances and innate character. How the Gulf's richer investors will act will depend, you would imagine, on their individual predisposition to pursuing far-flung returns, relative to the seemingly burgeoning opportunities at home.

Earlier this year a study by Emirates Investment Bank gave an indication of the attitudes and preferences of GGC-based HNWIs towards their financial allocation decisions.

"The results have shown that investors are becoming increasingly confident in the region," it said, "while some continue to invest globally as a method of diversification and seeking stability. In a significant shift, HNWIs are now overwhelmingly more focused on wealth generation than its preservation," a reflection of the passing of the global downturn.

Cultural bias

At the same time, interestingly, respondents were mostly inclined to devote their resources either to their own businesses or to real estate (in roughly two-thirds of cases), followed by cash deposits. Stocks and bonds were much less favoured, barely even matching the option of gold and other precious metals. A cultural bias is suggested by those findings, with an apportioning that probably will not have changed very much in the intervening months.

Societe Generale Private Banking's Geneva-based head of investment strategy, Alan Mudie, told me last week: "In my view, Gulf investors share many of the same concerns as in other regions, [and] have felt compelled to reach for yield in ever-riskier securities." That's a tendency compounded by low borrowing costs, and the rising cost of living, as well as escalating property prices, he added.

China and India increasingly are on the radar. While "GCC investors are increasingly sophisticated and alert to opportunities in global markets, they tend to be more familiar with the US and Asia," Mudie says. China's gradual market opening provides a new major currency for diversification, and India's new growth-friendly government and highly-respected central bank governor "have been met with great interest".

The environment generally "remains favourable to risk assets, but all good things do eventually come to an end", Mudie cautions. Societe Generale Private Banking's own strategy at this point remains positive towards equities globally, but tends to be looking eastward (Japan, Korea, Taiwan), where prices are still attractive relative to the US and Europe.

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Source: Gulf News (United Arab Emirates)

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