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Investors optimistic over capital flows to major GCC markets: Study

Saudi Arabia, the UAE and Bahrain see growth while Kuwait, Oman and Qatar bear negative outlooks

The investor sentiment about the direction of capital inflows to Saudi Arabia has shifted from negative last year to highly positive in 2015, with the opening of the country’s stock exchange to foreign institutional investors in June, as well as its long-term economic performance.

Despite the increasing threat of declining oil prices and a sharp drop in government surplus, 46 per cent of respondents in leading fund house Invesco’s Middle East Asset Management Study 2015 said they were planning to increase capital flows into Saudi Arabia tremendously, while 23 per cent favoured a slight increase.

Meanwhile, the UAE maintained its status as the main regional investment destination in the GCC region, according to the Invesco survey. However, the proportion of respondents planning flows into the country declined to 72 per cent this year from close to 90 per cent in 2014.

Bahrain has also seen a significant turnaround in sentiment on capital flows, with 27 per cent favouring inflows this year as opposed to 73 per cent last year, on the back of the stabilisation of the country’s local political environment and the performance of its key regional partner, Saudi Arabia.

Invesco surveyed 167 investors from sovereign wealth funds, state pension funds, local insurance companies, family offices, banks and IFAs across the Gulf region between April and June.

“Our conversations in the region show that, while there has been optimism surrounding the regional economy and capital markets, concerns such as the oil price and government finances persist,” says Nick Tolchard, Head of Invesco Middle East. “While things can change quickly in the Middle East, it will be interesting to see if positive sentiment amongst local, especially Saudi, investors translates into reality over the next 12 months and whether the anticipated effects of the opening of capital markets take hold.”

Investors, meanwhile, had a robustly positive outlook for Saudi Arabia, the UAE and Bahrain, and more than half of respondents in the survey held the view that flows should be reduced to the other three major markets in the region: Kuwait, Oman and Qatar.

The study also argues that greater intra-regional capital inflows from the MENA and GCC markets could offset the decline in inflows from emerging markets, including Russia.

“These findings underline the diversified nature of the UAE economy, especially with capital flowing increasingly from MENA and the GCC. This could be transformational for the UAE, given the longer-term profile of GCC capital inflows, and is a much more stable and sustainable source of capital than relying on negative events in international markets causing short-term capital flight,” concludes Tolchard.