The EIB’s GCC Wealth Insight Report is a fascinating look at how the well-off see the regional and global investment scene, and how they intend to make their money work for them.
Spotlight cast on how wealthy in the Middle East spend their cash
There is nothing so fascinating as other people’s money. We seem to have an endless appetite for rich lists and power lists, all predicated on the fact that the wealthy are intrinsically interesting.
Khaled Sifri understands that, and also understands, as the head of Emirates Investment Bank (EIBank), the importance of what the bankers call “high net worth individuals” in the financial industry, and in the role they play in the economy.
That is why Mr Sifri commissioned the bank’s first survey of the investment habits of some of the wealthier individuals in the region. The EIBank’s GCC Wealth Insight Report, published yesterday, is a fascinating look at how the well-off see the regional and global investment scene, and how they intend to make their money work for them.
EIBank took the views of 80 of the richest people in the region, and asked them some pertinent questions. Where were they investing their money? What were their views on the regional and global economies? What sectors were most attractive to them as investment locations?
The results are a fascinating snapshot of the state of mind of the region’s rich, and especially the local rich, those with US$2 million in investable assets and above. “There was a bias towards the locals, because we don’t want their views to get lost,” explains Mr Sifri.
One striking conclusion is that the wealthy are increasingly likely to invest their money in the region, rather than abroad. “It’s the first year we’ve done the survey, so I have only anecdotal evidence and personal experience, but I’d speculate that it’s a fairly recent trend. More than 60 per cent of respondents said they wanted to invest locally, and I doubt that figure would have been so high some years ago”, he says.
“There was a time when most investment went overseas, but what has changed has been the capacity of local economies to absorb the investment. Now, with regional economies growing, they are more able to provide investment opportunities. There is a trust and confidence in local economies,” he adds.
Another significant trend is that wealthy investors are more likely to entrust their funds to local banks, which was not always the case. Some 59 per cent of respondents say they would prefer a local bank to manage their wealth, while a significantly bigger proportion, at 71 per cent, say the main bank advising them is currently a local bank.
“There is a positive reason for this: local banks have responded to the needs of their clients, and earned their trust by doing a better job for them. But there is also a negative reason: global banks have had a rough ride in the past few years. Look what happened to Cyprus. Nobody has ever lost any money with a local bank, we have a better track record,” says Mr Sifri.
Even those who look abroad do not look far. The UAE tops the list for regional investors, with some 28 per cent choosing it as their preferred foreign investment venue. China and Europe, in comparison, are on 21 per cent, with the US at 17 per cent.
The other significant theme that emerged from the survey was that the wealthy were predominantly focused on growing their assets, rather than simply preserving or protecting them. A huge majority, some 90 per cent, wanted to grow their wealth. This has probably been caused by the more benign economic climate perceived by the sample group – they are on the whole more optimistic than pessimistic about the outlook for the regional and global economy, and want to take part in what they see as a forthcoming period of accumulating wealth.
Not that the financial crisis and Arab Spring haven’t affected investment decisions. Some 66 per cent say their current investment outlook was affected by the financial crisis, and a sizeable minority say they are hesitant about investing in countries that have been hit by civil disturbance.
However, risk seems to be back on the agenda. “The wealthy are more likely to accept more risk, to take a chance, and are more entrepreneurial. Maybe there are social, cultural or historical factors at work here. Seeing all those skyscrapers growing up out of the desert must make people more bullish,” says Mr Sifri.
Which brings the survey around to real estate. Surprisingly, property is not the main focus in wealthy people’s investment plans. More (34 per cent) say they are likely to put their wealth in their own business, while only 25 per cent say property is their main current investment.
However, when asked the question what they would do with an unexpected $1m, the results are reversed: 37 per cent say property would be the main attraction, with 27 per cent putting the windfall back into their own business. Reflecting the comparative immaturity of the regional equity culture, only 3 per cent would put it in shares.
For Mr Sifri, it all boils down to the natural entrepreneurial bent of the regional investor. “Governments and others recognise that the entrepreneur is a key driver, of economic growth, of employment and business,” he says.
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