Gold bars on show at a bank. FAB's wealth sentiment index has slipped a little in August. Arne Dedert / AFP
Gold bars on show at a bank. FAB's wealth sentiment index has slipped a little in August. Arne Dedert / AFP

Business

First Abu Dhabi Bank's Wealth Sentiment Index falls 2.2 per cent in August

WSI Council members taking a more cautious approach to their personal investments

Mahmoud Kassem

August 30, 2017

The First Abu Dhabi Bank (FAB) Wealth Sentiment Index (WSI), a key gauge of how the wealthy in the UAE feel about their prospects, slipped 2.2 per cent month-on-month in August as tepid loan growth and lacklustre tourism weighed on feelings.

The measure fell to 1,017.37 in August compared to 1,040.66 in July, FAB said.

"The August score reflects a range of factors, including a surge in oil prices and an increase in stock indices," the report said.

"At the same time, a fall in tourism due to climbing summer temperatures and a drop in loan growth has negatively impacted the WSI."

While oil prices have been rebounding since the multi-year lows they touched in 2016, Brent crude oil, the benchmark measure of oil global oil prices, slipped 2.1 per cent in August as the US and other non-Opec members boosted production of the commodity. The UAE and wider Arabian Gulf relies on oil to fire up economic growth and the fortunes of the wealthy are closely tied to this commodity.

The latest figures on loans and advances for July show that, while lending grew, the rate of expansion for the first seven months of the year at 0.2 per cent was slower than the 0.5 per cent growth in the first seven months of 2016. Total loans and advances increased 0.2 per cent to Dh1.594 billion in July compared to Dh1.54bn in July 2016. Figures for loans and advances in August are not yet available.

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Tourism in the UAE has been on the rise this year as the US dollar weakened. That has made trips to the country more affordable as the dirham is pegged to the US dollar. But during the summer when temperatures can soar to as high as 50°C, many tourists shy away from touring the Gulf.

The WSI Council members polled said the movement of oil prices and geopolitics were the main factors affecting the UAE economy. Despite the dip in August, the members said they remained optimistic about the UAE economy but that they were taking a more cautious approach to their personal investments.

The WSI, the first of its kind in the UAE and Middle East and North Africa region, was launched in January 2017. The compilers use market sentiment based on fundamental and economic factors.

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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.”