The number of high net worth individuals (HNWI) in the Middle East increased 2.7 per cent in 2011 to reach half a million, according to the World Wealth Report 2012 released by Capgemini and RBC Wealth Management. Wealth in the region also rose by 0.7 per cent to $1.7 trillion.
“The growth rate for the Middle East’s HNWI population was robust when compared to other regions and it was the only region where HNWI wealth increased,” said the report.
The increase in wealth is not surprising, considering that regional economies are posting strong growth rates – IMF’s latest report projects that real GDP growth in the GCC states will reach 5.6 per cent in 2012.
“The GCC economies are enjoying high growth,” Christine Lagarde, IMF’s managing director said in a statement.
“The effects of the global downturn have so far been limited, oil prices remain near historically high levels, and higher export volumes have contributed to buoyant hydrocarbon revenue. With expansionary fiscal policies and low interest rates providing strong stimulus, the GCC’s 7.5 per cent output growth in 2011 was the highest since 2003, and growth is remaining strong in 2012.”
With greater liquidity in the economy, consumer confidence in the market is also cautiously returning, leading to a rise in the need and willingness to invest amongst the regional population.
However, the hurdles that new investors are enormous – should they invest in equity, bonds, gold or real estate? Or should they invest small portions in all of those? Which are the stocks they should choose? Should they invest at home or abroad?
Omar Shelbaya, regional sales director MEA of Friends Provident International (FPI) advises aspiring investors to make informed and educated decisions about where to deposit their wealth in order to get the right returns.
He lists ten factors to keep in mind before you invest, and explains why they are vital.
Diversification of assets allows you to spread the risk associated with investment across different categories. A better strategy may be to invest a percentage across the lower risk category funds such as cash and gold to avoid having all the assets in high-risk categories.
2. Time Horizon
FPI’s latest Investor Attitudes report found that due to global economic factors, UAE investors are pursuing long term investment strategies that last over five years. Generally, medium to long-term investments allow for more confidence in returns.
3. Risk Appetite
People should choose assets that match their attitude. Currently, UAE investors have a lower risk appetite and are increasingly opting for risk-averse strategies. An investment that gives a high return but has a strong tendency to fluctuate in value may only be suitable for those who can afford to lose money, or can accept a higher degree of price volatility. Investors should fully consider how they would react to such fluctuations and invest accordingly.
Always consider the influence of inflation in any asset-class you decide to invest in. Inflation may not have a drastic effect on stocks, but it plays a huge role in fixed income investments. When you receive your return on investment in a few years time, you may find capital erosion due to inflation eating into your profits.
5. Reasons For Investing
Why are you investing? Retirement? To buy a house back home? These basic questions will help you calculate your risk appetite and how much you are willing to invest. That in turn will help you choose the appropriate asset class for your investment.
6. Financial Advice
According to FPI’s report, with increasing negative sentiment towards shares/equities, the number of investors turning to stockbrokers has declined significantly. In fact, when friends and family hit the jackpot, people turn to them for strategic financial advice. However, without qualified advice, you can never be sure of the outcome of your investment.
7. Past Performance
Past performance of any asset is not a firm indicator for the future. Even if you have monitored a stock’s movement for years, future market changes are not predictable.
In the short term, markets appear volatile and risky. They increase anxiety levels and decrease consumer confidence. But in the long term, time is on your side, and holding on to your investments may help to smooth out short-term market volatility.
9. Geographical considerations
Many people invest in countries that they hear are performing well, without doing due diligence. Always study a new market and consider the micro and macro factors at play.
10. The Cost of Investing
Keep in mind that you not only pay for the investment, but for other elements as well such as professional advice and portfolio transaction costs. The latter includes the cost of buying and selling the assets the fund invests in, commission paid to stockbrokers and stamp duty. Stamp duty is the biggest of these costs. You need to be wary of the costs relative to the benefits of investing.