Investors drawn to UAE by local opportunities
The United Arab Emirates (UAE) has received the greatest share inflows of private capital into the GCC region over the past year, driven by increasingly attractive investment opportunities, according to Invesco’s fifth Invesco Middle East Asset Management Study.
The UAE saw total private capital inflows of 81% in 2014 based on interviews of over 100 industry participants within the main retail segments, compared to 52% the previous year. The study showed most other countries in the GCC to be in net outflow.
Local investment opportunities was the most frequently cited (33%) driving factor of private capital flow into the UAE, overtaking political stability as the primary reason to invest in the state.
“The fact that many respondents attributed capital inflows to local investment opportunities shows that the UAE is becoming an increasingly attractive investment destination in its own right,” said Tolchard.
Invesco said that as well as offering more attractive investments, the local regulatory environment, including the Dubai International Financial Centre, was improving the UAE’s reputation.
The state’s location also sets it up as a hub for African-GCC business. Over half (58%) of the capital flowing into the UAE was seen to be coming from emerging markets, including Russia and Africa. The study reveals the flows of private capital from Africa are up to 9% in 2014 from 3% in 2013 on a net respondent view.
Banks are rapidly building African divisions and assets under management, and in contrast to Russian assets, UAE intermediaries saw African private capital inflows as a longer term more structural trend.
A further small but significant trend identified in the study was the shift from Switzerland to Singapore across a range of GCC markets and client segments. In the UAE, 5% of assets leaving the country were allocated to Singapore, compared to 1% last year. Assets allocated to Switzerland reduced from 10% in 2013 to 4% in 2014.
Many respondents cited regulatory change linked to transparency and disclosure in Switzerland as the main driver around the shift to Singapore.
“While this trend is still small, it is telling of changing shifts in international capital flows and the growing significance of financial centres outside of the Western world more generally,” added Tolchard.
The study also shows the continued trend of investors using the UAE as a safe haven, with capital flows being driven by political instability in other regions.
“Our study shows that political stability is a hugely important factor in driving the direction of private capital flow, and the UAE is clearly considered a safe haven amidst geopolitical upheavals in the region and beyond,” said Nick Tolchard, head of Invesco Middle East.
Some 17% of respondents cited an increase in Russian and Commonwealth of Independent States assets flowing into the region from 10% in 2013. This was primarily due to the Crimean Crisis, with 30% of respondents citing local political stability as the most important factor for UAE inflows.
However, respondents highlighted a risk of rapid reversal of Russian assets. Since Russian investors have not relocated to the GCC region they could withdraw their UAE assets at short notice, should the political landscape in Russia and Commonwealth of Independent States stabalise.
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