Instability drives short termism in 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 it’s 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.
This year, one of the most striking findings is that over two thirds of these investors (69%) have a time horizon of less than five years for investments made in 2011, while less than one third (31%) of respondents have a horizon just beyond five years, investment horizons which are low when compared to 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 stated 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 lengthen their investment time horizons in 2012.
For 2011, just 4% of retail investors said they intend to lengthen their time horizons. This jumps to 20% for 2012, along with just 7% of institutional investors who said they intend to lengthen time horizons this year, which jumps to 15% for 2012.
“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,” says Nick Tolchard, head of Invesco Middle East.
“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.”