By Sarah Townsend
Emirates Investment Bank report shows notable shift towards conservative investments
The number of wealthy Gulf individuals who believe that the regional economy is worsening has grown significantly over the past year, according to new research.
More than a third (36 percent) of high net worth individuals (HNWIs) in the GCC perceive that the regional economy is deteriorating – a fourfold increase from the nine percent in 2015, according to the 2016 GCC Wealth Insight Report from Emirates Investment Bank (EIB).
Gulf HNWIs are more optimistic about the future, the report shows, with 83 percent saying economic prospects will improve over the next five years. This is broadly consistent with last year’s report which measured sentiment over 2014-2015, it said.
The report showed that 43 percent of HNWIs surveyed said that the global economic situation has affected their banking and investment decisions, representing a significant increase from 2015 when 28 percent said the same.
Of the 43 percent, more than half (56 percent) said investors are more cautious and seeking lower risk as a result.
In line with increased pessimism and cautiousness this year, there was a clear shift towards more conservative investments, the report noted, with allocations to cash and deposits rising to 24 percent of total investments from 17 percent in 2015, and 62 percent of HNWIs saying they expect to increase this allocation going forward.
Allocations to gold and precious metals rose to 9 percent of total investments compared to 5 percent in 2015, and there was a notable increase in allocations to director investments and private equity – up to 52 percent from 31 percent in 2015.
The report also indicated that HNWIs are increasingly diversifying their portfolios away from more traditional asset classes towards selective business ventures. For example, the report showed a significant decrease in planned allocations to real estate (51 percent, down from 81 percent in 2015).
Consistent with previous years, the largest average allocation is to their own businesses (27 percent), while 69 percent of HNWIs said they planned to increase their investment in their own business in the “near future”.
And, despite greater caution, a clear majority of HNWIs (86 percent) said they were interested in growing their wealth, rather than consolidating their assets.
The GCC retained its appeal for HNWIs – 76 percent of Gulf HNWIs surveyed said they prefer to keep their assets close to home, according to the research.
EIB surveyed just under 200 HNWIs from GCC countries between September and November 2015 to reach its findings.
For the purpose of the research, HNWIs were defined as individuals with more than $2 million or more of 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.
“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.
“However, confidence in markets such as the UAE and Qatar remains very strong and, when taking a longer-term view, HNWI's say they are optimistic about the Gulf region as a whole.”