Where to Invest: UAE millionaires prefer cash, gold; shun property

The UAE’s ultra-rich are the most bullish among their GCC pals, and there’s ample reason for their joy.

A quick look at the region’s stock market proves a rather potent point.

At yesterday’s close, all regional stock markets were in the red compared to where they closed on December 31, 2015. All but the UAE markets, that is.

Khaled Sifri, CEO of Emirates Investment Bank

Since the beginning of this year, the Saudi Tadawul is down 9.8 per cent, the Doha stock exchange is down 2.2 per cent, the Kuwaiti market is down 6.6 per cent, the Muscat Securities Market is down 2 per cent and the Bahrain market is down 4.9 per cent.

By contrast, the Dubai Financial Market General Index is up 5.4 per cent while the Abu Dhabi Exchange is up 2.2 per cent.

And that lends a whole host of confidence to the well-heeled. Little wonder, then, that almost 6 out of 10 of UAE’s ultra-wealthy (58 per cent) are bullish about the economic situation in their own country, according to 2016 Wealth Insight Report.

In contrast, just 8 per cent of the rich in Kuwait, Bahrain and Saudi Arabia said they felt the economic situation was improving.

The report by Emirates Investment Bank, a Dubai-based boutique bank, interviewed 100 high net worth individuals in the six GCC countries.

The bank maintains that this year’s findings show that the GCC remains an attractive investment destination for HNWIs despite a challenging year for the region, dotted with the falling oil price and geopolitical instability.

However, it states that there remains a clear element of caution amongst investors. The ultra-rich in Oman are most likely to feel that the economic situation in their country is worsening (67 per cent), the report highlights.

In addition, Saudi Arabia has seen the biggest shift in sentiment, with six in 10 respondents (59 per cent) in the 2015 Report saying that they felt their economy was improving. This year, only 8 per cent felt the same.

“With the global economy currently going through a period of significant volatility and with depressed oil prices, it comes as no surprise that this year’s report is more somber than in previous years,” said Khaled Sifri, CEO of Emirates Investment Bank.

“However, confidence in markets such as the UAE and Qatar remains very strong and, when taking a longer-term view, [the ultra-rich] say they are optimistic about the Gulf region as a whole. Consistent with previous years, the majority of GCC’s high net worth investors prefer to invest in the region over global markets, despite any geopolitical concerns,” Sifri said.

Hard cash, gold are back in vogue

The report suggests that the wealthy have a negative outlook towards the current situation of both the global and regional economies, something that has affected the investment and banking decisions for a majority of those interviewed.

More than half of the ultra-rich surveyed (51 per cent) say that local economic conditions have affected their banking and investment decisions, an increase from 33 per cent in 2015.  

That has prompted them to become far more cautious with their money than before, and they’re holding almost a quarter (24 per cent) of their investable wealth in hard cash or liquid bank deposits this year compared with a 17 per cent allocation last year.

In addition, their safe haven appeal has encouraged the region’s ultra-wealthy invest more in gold and other precious metals this year (up to 9 per cent in 2016 from 5 per cent in 2015).  

This means that the wealthy currently hold a third of their wealth (33 per cent) in cash/deposits and gold – a sign that they’re extremely cautious with their investments at the moment.

The largest portion of their wealth (27 per cent), however, gets pumped into their own businesses, with seven in 10 respondents (69 per cent) saying that they plan to further increase investment in their own business in the near future.

Meanwhile, six in 10 (62 per cent) intend to increase their investment in cash/deposits, which suggests that the ultra-rich expect to remain somewhat cautious in the years to come.

The well-heeled were most negative towards stocks, with just 20 per cent of the respondents saying they plan on increasing their allocations to stocks, while 33 per cent saying they plan on decreasing their allocations to shares.

Invest locally, but not in property

The ultra-rich’s planned allocation of wealth in the future shows a a significant decrease in planned allocations to real estate (51 per cent, down from 81 per cent in 2015), which suggests that savvy investors are increasingly interested in diversifying their portfolios away from the more traditional asset classes towards selective business ventures.

There is also a notable increase in planned allocations to direct investments / private equity (52 per cent, up from 31 per cent in 2015). Similar to the 2015 report findings, a significant majority of the respondents (76 per cent) prefer to keep their assets closer to home.

Amongst the respondents who prefer to keep their assets close to home, almost half (47 per cent) say this is because they are confident that investments in the region are secure. Other reasons cited include the ability to oversee investments (18 per cent) and familiarity with the risks and regulations (16 per cent).

More than four in 10 wealthy respondents (43 per cent) maintain the global economic situation has affected their banking and investment decisions, which represents a significant increase from 2015, when only 28 per cent felt the same.

Amongst this group, the most commonly cited impact is that investors are more cautious and seeking lower risk (56 per cent) – which is mentioned twice as frequently than in 2015.

More than a fifth of respondents (21 per cent) say that it has prompted them to reduce (or stop) their global investment exposure.

For the nearly quarter of respondents (24 per cent) who are global investors, the most commonly given reasons for this relate to diversification and risk management, with the ultra-wealthy seeking to protect their assets in the context of instability in the region (42 per cent).

Other reasons include a desire to take advantage of global opportunities, having legacy investments overseas, and having a strong knowledge of these markets.

Despite the sense of greater caution, a clear majority of the wealthy (86 per cent) say that they are focused on growing their wealth rather than adopting a position of consolidation.

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