Middle East Institutional Investors Should Understand This is Not a Cyclical Crisis
Middle East Institutional Investors Should Understand This is Not a Cyclical Crisis
Albena Georgieva, Executive Producer of the marcus evans Middle East Investments Summit 2011, shares her views on key investment trends for 2012 and looks behind the curtain of the region’s most respected event for local institutional investors.
Dubai, UAE, January 19, 2012 – FOR IMMEDIATE RELEASE
As the Arab Spring enters its second year, Middle East equity markets are down substantially. Adding to the pressures on the region are declining commodity prices and the contagion effects of the eurozone crisis. What would 2012 hold for Middle East institutional investors?
The fifth annual marcus evans Middle East Investments Summit 2011, which took place on 23 – 24 November 2011 in Dubai, UAE, provided a closed-door platform for over 80 carefully selected Middle East family offices, insurance companies and private banks. Participants had an opportunity to discuss asset allocation trends for 2012, as well as update themselves on the latest in risk management and Islamic finance.
Understanding that the world is not going through a cyclical crisis is the most crucial piece of knowledge Middle East investors would need to survive the turmoil, agreed summit attendees. There is very little idiosyncratic risk left in global markets, and with a prevalence of systematic risk, MENA institutional investors must assess the size of their risk positions, acquire an accurate liquidity view and ensure effective use of leverage.
Not far behind in importance is systemic risk. If general distress in MENA capital markets is paired with the potential externalities of financial institutions, a disruption in the real economy would be unavoidable. It is therefore paramount for Gulf economies to gauge the impact of large defaults, as well as monitor fundamentals and fund flows to determine systemic hot spots.
Risk management would remain high on the agenda of Middle East institutional investors, it was highlighted in summit discussions. It is imperative to limit downside risk by using various floors. Diversification is no longer a free lunch for all – it gives no benefit in the short term, as shown in recent studies of correlation.
One solution suggested at the marcus evans Middle East Investments Summit is to invest conservatively for short periods of time. According to another speaker, the current reality is one of passive aggressive investing. Investors tend to hold cash and invest small amounts in very risky assets. If Middle East investors can reverse this mindset, they would be able to take advantage of other people’s loss aversion. According to a behavioural finance expert who presented at the summit, people hate losing twice more than they like winning. MENA institutional investors should therefore aim for slow and steady returns.
Short-sightedness is a cause of risk, most attendees agreed, because it creates illusory wealth. Islamic finance promises to remove “imaginary” products by relying on the two pillars of realism and ethicality. Islamic finance can without doubt bring diversification to Middle East institutional portfolios, but it must deliver to value chain expectations. While Sharia’a investing can easily complement conventional finance, Islamic finance experts must work to resolve the form and substance issue.
For a big part of the audience at the marcus evans Middle East Investments Summit real value can be found in investing for the 80 per cent economy, focusing on job creation and the daily well-being of ordinary people during times of turmoil. Social development, transportation and healthcare in the MENA region were highlighted as main themes for 2012, but governance transparency remains an issue, as many management boards usually do not change for years. With the private sector largely underdeveloped, domestic demographic demand is key to capital growth for Middle East investors. Market players should aim to add value and stay away from sectors with extra supply – the broker’s business model is bust.
While a majority of the audience at the summit was oriented towards long-term investing, opportunistic behaviour seems to be catching on according to part of the speaker panel. Fear for inflation is irrational, some economists said, because there are no real pressures for inflation at the moment. However, chronic sources of volatility are still driving up gold prices, even though its production cost does not justify its current value. If Middle East institutional investors would like to flourish in 2012, they should find a way to take less risk and get similar returns. Suggestions on how to achieve this delicate balance included emerging market bonds, investing in education, and even distressed secondary private equity, if there was better fee transparency.
B. C. Forbes once said: “It is only the farmer who faithfully plants seeds in the spring, who reaps a harvest in the autumn.” Middle East investors should use the difficult transition of the Arab Spring and global economic uncertainty to plant those seeds in 2012 that would bring them prosperity in the years to come.
Contact: Sarin Kouyoumdjian-Gurunlian, Press Manager, marcus evans, Summits Division
Tel: + 357 22 849 313
Email: press@marcusevanscy.com
About the marcus evans Middle East Investments Summit 2011
This unique forum will take place at the Park Hyatt Dubai, UAE, 23 – 24 November 2011. Internationally acclaimed as the leading event for Middle East institutional investors, the Summit offers much more than any conference, seminar or trade show. This exclusive meeting will bring together esteemed institutional investing experts and market leading solution providers for a highly focused and interactive networking event. The Summit includes presentations on seizing attractive investment opportunities, gearing up for new regulatory regimes, and securing portfolio performance.
For more information please send an email to info@marcusevanscy.com or visit the event website at www.mei-summit.com/AGExecutiveInsight
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