Fitch lowers Qatar's sovereign rating

Fitch Ratings cut Qatar’s sovereign rating by a notch on Monday, citing slim prospects of ending the diplomatic and logistical isolation by its neighbours, which has dealt a blow to the gas-rich nation’s external balance sheet.

Qatar’s long-term issuer default rating was lowered to 'AA-' with a negative outlook, as the resolution of the ongoing dispute with Saudi-led bloc of Arab nations was “unlikely” for some time, Fitch said in a statement.

“International mediation efforts are still on-going but are not showing significant progress,” Fitch said in the statement. “In our view, the negotiating positions of Qatar and the boycotting countries remain far apart.”

Fitch's rating action came a day after Standard & Poor's Global Ratings reaffirmed its negative outlook for Qatar's long and short-term foreign and local currency sovereign ratings, saying the economic boycott of Doha could potentially lead to slower economic growth.

Saudi Arabia, the UAE, Bahrain, Egypt and other countries severed diplomatic and transport ties with Qatar in early June, accusing Doha of supporting terrorism and meddling in their internal affairs. Qatar has denied the charges.

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The dispute, the worst since the creation of the economic bloc of GCC in 1981, has affected Qatar’s economy, especially its banking sector, which is facing the threat of further outflows of foreign deposits from the financial system.

“We expect outflows of non-resident funding from Qatar's banks to continue, albeit at a slower pace than in June-July,” Fitch noted.

Fitch estimates Qatar's economic growth will slow to 2 per cent in 2017 and further weaken to 1.3 per cent in 2018, compared with a 2.2 per cent GDP growth in 2016. Separately, the rating agency has also cut its historical estimates of the assets of the country’s sovereign wealth fund, Qatar Investment Authority (QIA), following recent comments on their valuation by Qatar's Central Bank governor.

“We expect Qatar's sovereign net foreign assets to fall to 146 per cent of GDP in 2017 from 185 per cent in 2016 as the public sector, including the QIA, continues to move some of its deposits into Qatar's banks, offsetting the outflow of non-resident deposits,” Fitch said, adding that the non-financial public sector placed deposits of more than $18bn in Qatar's banks in June and July, and that is forecast to rise to $35bn by the end of this year.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Day 1, Dubai Test: At a glance

Moment of the day Sadeera Samarawickrama set pulses racing with his strokeplay on his introduction to Test cricket. It reached a feverish peak when he stepped down the wicket and launched Yasir Shah, who many regard as the world’s leading spinner, back over his head for six. No matter that he was out soon after: it felt as though the future had arrived.

Stat of the day - 5 The last time Sri Lanka played a Test in Dubai – they won here in 2013 – they had four players in their XI who were known as wicketkeepers. This time they have gone one better. Each of Dinesh Chandimal, Kaushal Silva, Samarawickrama, Kusal Mendis, and Niroshan Dickwella – the nominated gloveman here – can keep wicket.

The verdict Sri Lanka want to make history by becoming the first team to beat Pakistan in a full Test series in the UAE. They could not have made a better start, first by winning the toss, then by scoring freely on an easy-paced pitch. The fact Yasir Shah found some turn on Day 1, too, will have interested their own spin bowlers.

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Ain Issa camp:

Established in 2016
Houses 13,309 people, 2,092 families, 62 per cent children
Of the adult population, 49 per cent men, 51 per cent women (not including foreigners annexe)
Most from Deir Ezzor and Raqqa
950 foreigners linked to ISIS and their families
NGO Blumont runs camp management for the UN
One of the nine official (UN recognised) camps in the region