Complex Made Simple

Exclusive: GCC gear up for these investment opportunities in 2019

New research from Old Mutual International and Quilter Cheviot Investment Management has revealed that increasing numbers of UAE based investors are concerned about the impact of a slowing economy on their investments.

This pretty much reflects a GCC picture as well.

Over half of respondents (54%) believe economic stagnation in the world economy will be the biggest risk to their investments in the next 12 months, up from 39% in 2017.

Gloom but not doom

The global economy is suffering, global markets are shaken after a terrible 2018, says Saxo Bank.

Global debt has gone from around $175 trillion to over $250 trillion, and a global recession is making its weight felt, with repercussions to be felt in this region as well.

Issues such as growing trade uncertainty, weak economic indicators and a series of global political challenges have pushed major stock market indexes down and created conditions for volatile markets.

Not lost in this picture are the opportunities taking shape in the GCC.

Read: UAE economy forecast to grow by 3.8% between 2019 and 2023

The UAE has introduced a 10-year residency visa for foreign investors to encourage international interest in its development programs.

Attending the World Economic Forum in Davos, Switzerland, Kingdom Holding CEO Talal Ibrahim Al Maiman told CNN that his company plans to invest $1 billion in Saudi within the next 6 months.

“We believe there are better opportunities in Saudi Arabia and the region today,” Al Maiman said told CNN Business’ Emerging Markets Editor John Defterios. “Much better multiples and greater potential.”

GCC wide GDP growth of 3% is projected for 2019, according to IMF officials, just below a global economic growth forecast of 3.7%.


1-Fixed income

According to Emirates NBD CIO-Office Weekly, the Kingdom of Saudi Arabia along other four sovereign states are making their way to JP Morgan’s EM bond indices. As reported by a Bloomberg news article, the GCC would account for up to 12% on the indices by the month-end across the 15 benchmark borrowers in the region.

“GCC debt has been a significant and long-standing overweight conviction for us. While the GCC bonds benefit from technical support, on a ratings-adjusted front, the valuations amongst their EM peers is also compelling. The recent demand on the GCC primary issuance is a good testimony, in our opinion,” said Emirates NBD.

GCC markets continue to do well with the KSA up nearly +8 percent year-to-date, while the Dubai Index is flat year-to-date.

Video: Davos Summit 101 – Here’s what you need to know

2-Banking on blockchain

The UAE and Saudi Arabia have agreed, according to state news agency WAM, on services in the financial markets including a pilot cross-border cryptocurrency strictly targeted for banks at an experimental phase with the aim of better understanding the implications of Blockchain technology and facilitating cross-border payments.

In October 2018, Dubai announced plans to create regulations that would allow initial coin offerings (ICOs) in the country, while Saudi recently announced the completion of a blockchain pilot that linked the nation’s cross-border trade platform to the TradeLense platform.

3- e-commerce

GCC represents the fastest growing and highest spending market in the region, according to a Dubai CommerCity report.

The Report estimates that there was $51 billion of e-commerce sales across MENASA in 2017 and that the region’s e-commerce expected to grow at a rate of 24.6% CAGR through to 2020, with UAE companies representing 11% of the top 100 B2C e-commerce companies in MENASA region.

4- startups

Viresh Harduth, Vice-President: New Customer Acquisition (Small and Medium Businesses) for Sage Africa & Middle East said the start-up scene in the Middle East, and particularly the UAE, is ripe with opportunities and booming with the emergence of small and medium-sized businesses (SMBs).

“From food delivery to music-streaming and service marketplaces, the region has it all,” Harduth said, adding there was strong government support for homegrown innovation.

In fact, the MENA based start-ups received estimated funding of $893 million in 2018, with a 31% in investment compared to 2017, according to Magnitt 2018 MENA Venture Investment Report.

Read Dubai’s track record: 96 percent consumer complaints resolved in 2018

5- infrastructure

According to World Finance, infrastructure development has accelerated particularly in the face of two key world events: Expo 2020 Dubai and the 2022 FIFA World Cup.

Dubai has allocated $15.4bn to construction projects ahead of the event, while Qatar will spend $220bn in the run-up to the Cup.

“When it comes to foreign direct investment (FDI), the UAE is leading the charge, drawing in around $9bn in 2018.


1-Private equity slump

As the private equity industry in the MENA region closes a year of consolidation and slow fundraising in 2018, the alternative investment asset class is not expected to record many transactions in 2019, either, according to a Zawya report.

Amidst rising interest rates and tough global macro-economic conditions, corporate governance-related concerns mean the industry is bracing for more scrutiny by investors, say analysts it spoke to.

According to Preqin, which tracks data for alternative asset classes, there were 17 private equity-backed buyout deals in MENA region in 2018, which was the same number as in 2017, but considerably lower than completion numbers in 2016, 2015, and 2014, when 32, 31, and 46 deals were completed respectively,” said Zawya.

The Preqin data sent to Zawya showed that only eight private equity funds with exposure to MENA closed last year, with $406 million in aggregate capital raised – down 65% on the $1.168 billion raised through ten funds in 2017. Even this was considerably lower than the $14.283 billion raised in 2015.

2-Lower Brent

Brent is expected to average $65 this year against $71.8 in 2018, thus leading the Gulf Co-operation Council (GCC) economies to slow down to 2% in 2019 compared to 2.3% estimated for the previous year, according to the Institute of International Finance (IIF).

It said fragile investment sentiment and regional tensions continue to hinder the growth of the private non-oil sector.

Expecting the aggregated fiscal deficit to widen again from 1.4% of GDP (gross domestic product) in 2018 to around 4% in 2019 and 2020, and the public debt to rise to 45% of GDP by 2020; IIF said the authorities in the region will continue relying on international and domestic borrowing to fund their deficits.