Dubai shares suffered their worst one-day performance in two months on Wednesday, as the prospect of rising US interest rates weighed on emerging markets.
The US dollar rose against the euro, in anticipation of a speech by the US Federal Reserve chairwoman Janet Yellen on Friday, which may give hints as to the Fed’s plans for interest rates. Emerging market equities retreated, with the FTSE Emerging Index down by about 1 per cent on Wednesday afternoon.
Oil prices also drifted lower on Wednesday after briefly crossing the US$50 per barrel mark late on Tuesday, on data that showed rising US stockpiles. Brent crude futures were down at about $49.32 per barrel in the afternoon.
Shares in Dubai led declines across the Arabian Gulf markets, closing down 1.5 per cent at 3,480.46.
Emaar Properties acted as the main anchor on the index, falling 2 per cent to Dh7.04. Emirates NBD, Air Arabia and DFM were all down by about 3 per cent.
Drake & Scull International was one of just three gainers, rising 1 per cent to 49 fils, after the contractor denied media reports that it had hired legal advisers to bring in outside investors.
The main index in the capital fell 0.4 per cent to 4,513.16, with FGB and Aldar leading the losses.
Etisalat shares were the pick of the big-name gainers, rising 0.5 per cent to Dh19.95.
The Qatar Exchange topped gains across the region, closing up 0.6 per cent thanks to gains at QNB and Ezdan Holding.
In Saudi Arabia, the Tadawul closed down 1.1 per cent, its fourth consecutive day in the red.
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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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