Middle East investors seek emerging markets as geopolitical tensions rise, survey says
RIYADH: Middle East investors are following their global peers in prioritizing India and emerging markets amid concerns over geopolitical tensions, the a survey.
In its latest report, Invesco, an investment management company in the United States, said that 88 percent of the world's funds, including 100 percent in Middle East region, considers the South Asian country as the most attractive investment destination among the emerging economies.
Saudi Arabia's Public Investment Fund has already shown its ambitions in emerging countries such as India. In September 2023, the Minister of Investment of the State Khalid Al-Falih expressed the possibility of establishing a public treasury office in the Asian country, as well as the investment loans to Indian startups catering to the Saudi market through venture capital funding.
Commenting on her company's report, Josette Rizk, head of the Middle East and Africa at Invesco, said: “In an unpredictable macro environment, investors are rebalancing their portfolios, moving towards equities, private debt and hedge funds.”
He added: “Emerging markets are gaining momentum, with funds using a selective approach.”
According to the report, wealth funds are planning to change their portfolios to reflect the new macro environment, with 27 percent and 50 percent in the Middle East planning to increase their allocations. credit for next year's infrastructure.
Invesco's findings are based on the views of 140 chief investment officers, asset class leaders, and senior portfolio strategists at 83 sovereign wealth funds and central banks. 57, which manages $22 trillion in assets.
Geopolitical tensions pose risks to economic growth
The survey revealed that 95 percent of investors in the Middle East considered geopolitical tensions to be the biggest risk to economic growth over the next 12 months.
According to the report, inflation also remains a major concern for these investors, with 43 percent of the world's sovereign wealth funds and central banks and 68 percent in the Middle East expect it to be based on the bank's highest goals.
The survey also noted that nearly three-quarters of investors – 71 percent globally and 70 percent in the Middle East – expect interest rates and bond yields to remain at moderate levels. single over a long period of time, which indicates a change in expectations.
The increase in private debt
The report notes that private lending is also growing in popularity, with 35 percent of government financing globally and 22 percent in the Middle East currently have no personal debt investments.
Invesco believes that the appeal of private equity is driven by the volatility of traditional fixed income and its value compared to conventional debt.
The study said that the United States is the most attractive market for private debt, with the country given the preferred option by 67 percent of global financing and 71 percent in the Middle East.
However, Invesco said interest in private debt is growing in emerging markets, as more than half of respondents, including 58 percent in the Middle East region, believe that there are unsolved times in these countries.
“Private lending is becoming more and more common with public funds, with many investments through cash and direct deals. Public funds in the region have developed markets but are also exploring emerging markets and balancing defensive and opportunistic strategies to navigate the competitive environment,” said Rizk.
The application of AI
Invesco also noted that more than a third of global investors use advanced technology such as artificial intelligence in their investment process.
A majority – 93 percent globally and 100 percent in the Middle East – believe AI will play a role in their organizations.
The rise of generative AI has caused 66 percent of sovereign wealth funds and central banks worldwide and 83 percent in the Middle East to rethink their current AI strategies and explore new applications for this technology.
The survey also found that half of investors worldwide and 80 percent in the Middle East believe that implementing AI can improve returns.
“Investors in the region are increasingly incorporating AI into their investment processes, recognizing how it can become a useful tool. Despite the challenges, they are investing in training and collaboration to overcome the financial barrier,” said Rizk.
The highest importance of ESG
Invesco said that investors who participated in the survey consider green procurement to be one of the biggest challenges, according to 84 percent of global wealth funds and 94 percent of hundred in the Middle East.
The report also found that investors are taking greater action, with 50 percent of accounts in the Middle East developing and monitoring their portfolios to combat climate change. day.
“ESG (environmental, social and governance) adoption continues to grow among central banks in the Middle East, while SWFs are refining their approach as markets mature,” Rizk said.
He added: “Investors recognize climate risk as a material element and align portfolios with global climate goals. Participation and provision of renewable energy is preferable to full financing to drive the energy transition.”
The attraction of gold
The survey revealed that gold is gaining momentum. In the last three years, 70 percent of central banks in the Middle East have increased their funding for the yellow metal.
According to the report, central banks are consolidating and increasing reserves, with 53 percent worldwide planning an increase in the size of their assets and 52 percent planning further consolidation.
The increase in US debt has a negative impact on the role of the global dollar, according to 64 percent of respondents worldwide and 33 percent in the Middle East.
About 18 percent of central bankers, including 20 percent in the Middle East, believe the US dollar's position as the world's reserve currency will weaken over the next five years years.
“Amid global uncertainty, central banks in the region are strengthening and improving reserves. Gold's appeal is on the rise due to concerns about rising US debt. Funding is increasing in emerging markets as central banks seek to improve returns and mitigate risk,” Rizk said.
In June, a survey by the World Gold Council noted that more central banks plan to increase their reserves within a year despite economic and political uncertainty and rise in the price of gold.
According to the WGC, 29 percent of the world's central banks expect to increase their reserves in the next twelve months, the highest since the survey began in the year 2018.
“Despite record demand from the official sector over the last two years and rising gold prices, many fund managers remain bullish on the yellow metal,” said Shaokai Fan, head of the Central Bank of the World Gold Council, at that time.
