Addressing Turmoil in the MENA Region

June 22, 2011

For the past several months, we’ve been bombarded with news about unrest in the Middle East and North Africa.  We are witnessing a truly historic and exciting period for the region that may reshape world politics and economies.  But it’s also a confusing time.  PORTIA is constantly being asked to share an opinion about how this news impacts our industry and clients. 

As one of the most active financial IT vendors in the Middle East, we hear directly from clients and prospects about the future of the asset management industry in the region.  Based on what we’re hearing, the future looks cautiously positive.  This blog aims to discuss how concerns in the region have changed over time and to provoke ideas on how the asset management industry will fare moving forward.

For many years as the region grew, asset managers and investors expressed concern about traditional topics for growth markets, such as the lack of regulatory frameworks, global distribution, human capital and market research and insights.  More recently, we heard a lot of noise about the impact of the market downturn, the real estate crash in certain countries and general doom and gloom.  Now almost all investors are worried about political instability, yet asset managers are expressing a cautious optimism about 2011-2012 growth prospects.

Before this period of political instability, the GCC countries made substantial improvements in their regulatory and compliance capabilities (ex: the Qatar Financial Regulatory Authority, Dubai Financial Services Authority, etc.).  The Dubai real estate crash had a direct and indirect impact on asset managers; however the positive momentum in other regions such as Abu Dhabi and Jeddah helped offset some of these losses.  Despite the substantial flight of capital from regional equity markets, we have witnessed a bullish trend on fixed income investments and Islamic investment management.

So why are investors so scared now?   I believe this is because negative sentiment can be blinding to the economic truths underpinning the region.  First, it’s important to make a distinction between the MENA region and the countries in the GCC (Saudi Arabia, UAE, Qatar, Kuwait, Bahrain and Oman).  Although political unrest is impacting GCC countries, many GCC economies are supported by substantial natural resources.  Higher oil prices, for example, provide GCC countries with liquidity and stability.  Countries such as Jordan, which imports 95% of its energy requirements and relies on an assortment of tourism and regional exports to the MENA region, will be much more severely affected by the negative sentiment than an oil-rich nation that can sell its goods to a politically-agnostic market.

It’s also important to remember that the asset management industry remain highly concentrated.  Just as the majority of European funds domicile and/or operate in a few countries (ex: UK or Luxembourg), the majority of asset managers in the MENA region operate out of Saudi Arabia or UAE, two of the GCC countries with strong liquidity and a history of stability.  We expect Saudi Arabia, UAE and Qatar to outperform other countries in the region based on their sound economics.

Only time will tell whether the GCC countries are in fact a more stable investment than investor sentiment would currently indicate.  But based on what we hear from clients and prospects in the region, asset managers in MENA and particularly in the GCC are looking to consolidate and grow in 2011.  We believe that platforms such as PORTIA that address the more fundamental issues with the market – compliance, performance, reporting, transparency, global reach and control – can enable growth for their clients.

What trends do you see in MENA?  What are your predictions for how asset managers in the region will fare in 2011 and beyond? 

-Matt Bellias, Director of Strategy and Marketing

 

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