Western expats are looking for safe havens for their cash in the Middle East rather than concentrating on investments that drive income.
The appetite for investment was down across the Gulf Cooperation Countries (GCC), mainly due to the social and economic disruption surrounding the Arab Spring uprisings.
The unrest pushed Asian and Arab expats as well as resident local investors in to assets producing income – but Western expats looked for secure markets rather than risk or locking in to low interest rates at home, says the latest Invesco Middle East Asset Management Study.
Asset allocation choices across the GCC – comprising the United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait – disclosed almost all investors were looking at profiting from the short term interest rate differences across the Gulf.
Global fixed income
Western expats looked most to global fixed income – with portfolio shares rising from 14% in 2011 to 18% in 2012, reflecting low interest rates and a hunt for income and security, the survey says.
A strong demand for international life wrappers continued, adding up to nearly two-thirds of their portfolios. Single premium products took the largest share (37%), while calls for structured notes were up from 7% last year to 11% in 2012.
Invesco’s Katie Saha said: “This trend appears directly linked to the volatile global economy and the subsequent reduction in risk appetite. The conservative approach we are currently seeing from this group certainly correlates with the allocation towards lower risk products.
“Our research therefore suggests than any new product propositions being put forward could benefit from offering exposure to quality sources of income and relative security.”
Debt bond yields
Gulf locals and Arab expats showed a marked preference for local fixed income bonds.
“Typically, they eyed significant interest rate differentials and attractive income offered by local sovereign or quasi government debt bond yields linked to the fixed rates,” said Saha. “Current bond yields in the UAE and Qatar of over 5% in some cases are perceived as attractive on a risk-return basis, compared to international US-dominated yields of less than 1%.
“This trend appears directly linked to the volatile global economy and the subsequent reduction in risk appetite. The conservative approach we are currently seeing from this group certainly correlates with the allocation towards lower risk products. Our research therefore suggests than any new product propositions being put forward could benefit from offering exposure to quality sources of income and relative security.”
