Region's wealthy fear volatility and hold on to cash

Economic conditions in the GCC will worsen this year as the risks from oil price volatility, political instability and terrorism prompt high net worth individuals across the region to keep their money in cash or other liquid assets.

According to a survey by Emirates Investment Bank (EIB), millionaire investors from across the GCC are attempting to protect their wealth through more conservative and cautious investment decisions rather than splashing out on expensive overseas purchases or assets that could be harder to sell in a hurry.

The bank interviewed 100 high net worth nationals and expatriates with more than US$2 million of investable assets living in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.

It found that nearly half of those questioned (47 per cent) felt that the global economic situation was worsening, while just 15 per cent thought that things were getting better. The result was in line with a year ago.

Closer to home, EIB found that high net worth individuals in the GCC have been getting steadily more pessimistic about the local GCC economy. It found that the proportion of respondents who said they felt they economic situation in the GCC was getting worse increased this year to 44 per cent, up from 36 per cent last year and just 9 per cent in 2015.

"The report does suggest a bit more caution concerning the medium-term outlook compared to previous years, but my view is that this is more realistic given the nature of the global economic and political climate," said Khaled Sifri, EIB’s chief executive.

According to the survey, respondents reported that the average proportion of their wealth invested in cash and bank deposits had increased to roughly 27 per cent this year, up from 24 per cent last year and 17 per cent in 2015.

Conversely the amount of wealth invested in real estate investments fell to 15 per cent this year, down from 24 per cent last year and 30 per cent in 2015.

Globally, 42 per cent of respondents said that they were being more cautious about making new investment decisions and were looking for less risk, while 20 per cent said that they had reduced or stopped global investment activities.

Regionally, too, investors were gloomy. One-fifth of respondents said that they were being more cautious when making local investment decisions, fearing losses, while nearly as many (18 per cent) said that they had discontinued local projects because of the economic situation.

According to the report, investors said that the biggest factor affecting their investment decisions was the price of oil, with 71 per cent of respondents saying that it had some effect on their decisions last year.

Regional structural reforms were the second biggest factor, affecting 65 per cent of respondents.

Another 62 per cent said that currency fluctuations had some effect on their investment decisions.

And 45 per cent of those questioned said that the geopolitical situation in the Arab region had changed their approach to investing.

lbarnard@thenational.ae

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