- Over two thirds (69%) of investors have a time horizon of less than five years for investments made in 2011
- One in five stated regional stability as a key factor driving this short-term attitude
- Approach to investment risk and time horizons reaches turning point as changes are expected in 2012
Regional instability in 2011 is one of the major contributors to short-term investment horizons along with the risk-averse approach currently being displayed by investors based in the Middle Eastern Gulf Co-operation Council (GCC) region, but it’s all set to change in 2012 claims the second Invesco Middle East Asset Management Study*. Invesco opened its Dubai office in 2005, and has been working with GCC clients for decades, offering financial institutions and investment professionals access to global investment expertise.
The survey 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 however 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 in the region 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.
Nick Tolchard, Head of Invesco Middle East commented: “The lengthening of time horizons for the region’s investor community in the next year indicates GCC investor sentiment is becoming increasingly confident and optimistic moving into 2012, following the recent global financial crisis. 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.”
Risk aversion set to take a different tack in 2012
GCC investors have shied away from risk in 2011. Over a quarter of investors (27%) have actually decreased their risk exposure, with 32% of institutional investors either decreasing their risk exposure on funds slightly or significantly and a quarter (22%) of retail investors doing the same.
Predictions by the same investors, however, show that this pattern is set to reverse next year, with a quarter (22%) of all investors set to increase their risk exposure in their funds – 24% of institutional investors and 21% of retail investors.
Nick Tolchard, Head of Invesco Middle East commented: “Interestingly, this year the region appears to be risk-averse but still maintaining a short term time horizon, a contradiction of investment strategy really. However, the increasingly risk-averse investment patterns highlighted by the study, along with the broadening and strengthening of time horizons suggests that 2011 may be a real point of inflexion in the region, a shift to a more positive outlook as markets are expected stabilise amid global financial recovery, and investor confidence slowly returning.”
Institutional investors shun global equities as an asset class
Looking at specific asset classes, investors in the region are split when it comes to investing in global equities, with only 10% of all institutional money invested in this asset class. In comparison, four times as much retail money (40%) has been invested in global equities – North America (11%), Western Europe (11%) and India (6%) are the most popular regional splits, neatly reflecting the expatriate community in the region and supporting the fact that expats turn to their own home markets for investment.
Institutional investors seem to be spreading their risk across a much broader range of asset classes compared to retail, investing the same amount in private equity (10%) as in global equities. Local equities are the main choice for institutional investors in 2011 – 32% of assets have been invested in this asset class, more than any other.
Cash and property are the next favoured asset classes for both retail and institutional investors in the region, with 16% of all assets across the spectrum being held in cash and 12% in property, tying in with the cultural preference of investing in tangible assets. Investors showed little appetite for commodities, local bonds and hedge funds.
Nick Tolchard, Head of Invesco Middle East commented: “The Middle East has seen a fair amount of activity over the past year – both political and economic, the affects of which certainly come through in this year’s study. The Middle East continues to be a growing investor force in the world and we see this research as key to our understanding of investor perspectives in the GCC region. Carrying out this research on an annual basis means we are able to closely monitor the evolution of investment patterns among GCC investors, the retail investment market as it continues to grow, and increase understanding surrounding the behaviour and preferences of the highly sophisticated institutions operating in the GCC.”
