Instability drives short-termism among Middle East investors

A comprehensive report of intermediaries and their clients in the Gulf region suggests that political instability is behind the noticeably short-term time horizons of local investors.

Regional instability in 2011 is one of the major contributors to short-term investment horizons, along with the risk-averse approach currently found among investors based in the Gulf Co-operation Council (GCC) region. But this is all set to change in 2012, claims the second Invesco Middle East Asset Management Study.

The study looks at the attitudes and behaviours of institutional and retail investors within the GCC and includes individuals, corporates, family offices, IFAs, state-backed pension funds, private banks, retail banks, sovereign wealth funds, sovereign agencies and expatriates across the region.

Nick Tolchard, head of Dubai-based Invesco Middle East, says the study aims to understand such sensitive issues as the buying habits of sovereign wealth funds (they are not, in fact, seeking trophy assets, but generally are driven by asset allocation considerations, like other institutional investors), and how wealthy families in the GCC region run their own investment portfolios in a similar or different way to that of their corporate.

“The idea was to ‘look through’ short-term factors. The financial sector is stable, even if there are short-term events going on,” says Tolchard. “For example, last year there was strong interest in emerging markets among expatriate investors, but do they show a home market bias now? And what does the asset management industry need to do to develop. What kind of product development, training and segmentation is required?”

This year, one of the most striking findings of the Invesco study is that more than two-thirds of those polled (69%) had a time horizon of less than five years for investments made in 2011, while less than one-third (31%) had a horizon just beyond five years, both short when compared with investors in the West.

Multiple factors appear to drive this short-term attitude: 23% cite the main reason as cultural preference, while 22% say lack of investor experience is the driver.

However, a similar number (21%) also states regional stability as a key factor this year. It appears that this short-termism is in itself a short-term issue, with nearly one in five (18%) of all investors indicating they intend to extend their investment time horizons in 2012.

For 2011, just 4% of retail ­investors say they intend to lengthen their time horizons. This jumps to 20% for 2012, along with just 7% of institutional investors who say they intend to lengthen time horizons this year. This jumps to 15% for 2012.

Tolchard says: “The lengthening of time horizons for the region’s investor community in the next year indicates Gulf investor sentiment is becoming increasingly confident and optimistic moving into 2012, following the recent global financial crisis.

“The short-termism we are seeing going into 2011 may be unrepresentative and driven, we believe, by a combination of the tentative global recovery and regional political uncertainty.”

Risk aversion

GCC investors have shied away from risk in 2011. More than a quarter of investors (27%) have actually decreased their risk exposure, with 32% of institutional investors either decreasing their risk exposure on funds slightly or significantly and a quarter (22%) of retail investors doing the same.

 

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