Invesco study shows UAE captures most GCC private capital flows
The United Arab Emirates (UAE) is the key beneficiary of private capital flow into the Gulf Cooperation Council (GCC) region, according to the fourth annual Invesco Middle East Asset Management Study, with capital from emerging markets, notably India, Russia and China, overtaking those from developed markets.
Participants in the study, which looks at the evolving asset management industry in the GCC, estimate that just under half (43%) of private capital flow entering the UAE is from emerging markets including 15% from India, 10% from Russia, and 7% from China.
Just 13% of private capital is flowing in from across all developed markets including UK, Continental Europe and North America. Furthermore, just over a third (35%) of capital into the UAE is actually coming from the wider MENA region and 9% from the other GCC countries.
While capital is flowing into the UAE, overall capital in remaining GCC markets including Bahrain, Oman, Kuwait and Qatar appears to be exiting home markets, making the UAE the key focus for capital flowing into the region.
Net respondent view of the direction of capital flow for each GCC market
Last year, Qatar and Saudi Arabia were the main beneficiaries of private capital flows, noted Nick Tolchard, head of Invesco Middle East.
“Now, the pull factor for the UAE is its stability. Capital may have come to the UAE following the Arab Spring, but it is proving stickier than anticipated, especially in Dubai. The push factors are the active measures being taken to attract investment, removing barriers to inflows and developing links with other economies.”
Global heat map showing participant estimates of private capital flowing into the UAE from international markets (click on map for bigger infographic)
The trend identified in the Invesco study is supported by national statistics that highlight a 9% net increase in UAE bank deposits during 2012, and a 17% annualized growth rate in UAE property prices over the same period – both indicators of increasing capital flow.
Growth of UAE bank deposits (AED) and property prices in 2012
Before the financial crisis, the UAE saw leveraged capital (such as properties bought with mortgages) coming in from developed markets, but the picture painted by respondents in 2013 suggests non-leveraged capital (such as properties bought with cash) is now flowing in from regional and emerging markets.
The study identified two main drivers of capital flow into the UAE. The first, according to a third (33%) of participants, is its relative political stability compared to the MENA region. This is a consequence of continued regional instability – not just in Syria but in Egypt and other parts of North Africa, as well as some GCC countries.
The second driver for 29% of participants is the local investment opportunity. This is the overriding reason for Indian, Russian and Chinese markets investing in the region – an example of ‘South-South’ trade in action.
Key drivers of capital flow into the UAE
Tolchard said the 2013 study provides a strong indication of a structural shift in the UAE’s fortunes.
“It seems to be showing signs of developing a leading position as a regional hub between Europe and Asia. As an investment centre, the UAE has been proactive in attempting to build relationships and encourage investment from emerging markets so these inflows could also be indicative of UAE policy rather than simply emerging markets seizing the opportunity. This re-balancing has been important to the UAE recovery, as developed markets continue to focus on the economic situation closer to home.”
He said another trend identified in the survey is for single family offices over multi family offices. For these investors direct investing, usually through private equity deals, is preferred over intermediated solutions.
Despite positive momentum on capital flow, a number of Dubai’s economic challenges remain, “certainly around debt restructuring as 2014 approaches”, Tolchard added.
“Whether or not the recovery continues into this year and beyond is near on impossible to predict, but what is clear from the study is that the UAE has been successful in attracting international capital.”
This is Invesco’s fourth asset management study of the GCC region (comprising the UAE, Saudi Arabia, Qatar, Bahrain, Kuwait and Oman), conducted by iindependent strategy consultants NMG, which carried out over 100 face-to-face interviews with retail and institutional investor preferences across the region.
Invesco is part of Invesco Ltd. Operating in more than 20 countries, the company is listed on the New York Stock Exchange.