Uncertain Outlook for GCC Economy in 2016, says CFA Middle East Societies Market Sentiment Survey

Tuesday 12 April 2016
Amer Khansaheb

Dubai - MENA Herald: CFA Institute, the global association of investment professionals, has today unveiled the results of its sixth annual Middle East Societies Market Sentiment Survey, which provides market insights from CFA charterholders and members in the Middle East.

Low oil prices, geo-political instability and lower government expenditure are the three most important economic issues for the region in 2016, with respondents noting that revenue diversification strategies will also play a significant role in market performance.

One third (33 per cent) of investment professionals who participated in the survey said that regional inflation will increase with the introduction of Value Added Tax (VAT) in 2018, while 28 per cent stated that this development will increase the cost of doing business. The overwhelmings majority of respondents – 82 per cent - expect debt raising activities to increase, while 64 per cent gave Bahrain and Saudi Arabia’s equity markets the most negative outlook in the region, with Dubai faring the best.

Amer Khansaheb, CFA, President of CFA Society Emirates, commented:

“Investment professionals in the MENA region are perhaps less optimistic than their colleagues in other markets elsewhere in the world. The GCC is seeing increasing challenges hence it is reflected in the results of the annual CFA Middle East Societies Market Sentiment Survey.

“The biggest issue for investment management professionals in the region will continue to be oil prices, as 71 per cent of our members have revealed. We are entering a unique period in the GCC’s economic cycle, where dependence on oil revenue and government expenditure will decrease and we expect to see more strategies in place to create more diversified sources of revenue.

“An interesting theme to have emerged this year is improved transparency of financial reporting and other corporate disclosures; 62 per cent of respondents felt that this would have a beneficial impact on investor confidence across regional markets. A quarter also highlighted that enhancing the transparency of investment decisions and accountability would be the most important factor in establishing a positive sentiment within the investment industry.”

Top ten key findings from the survey:

The introduction of VAT will increase inflation rates across the GCC, according to 33 per cent of respondents. Over a quarter (28%) also expressed the concern that it will increase the cost of doing business.

Employment opportunities for finance professionals in the GCC will continue to decrease in 2016, according to 63 per cent of respondents. With banks and other financial institutions announcing job cuts, CFA members believe that this trend will continue as the job market worsens for finance professionals.

Market conditions will lead to business consolidation for organisations, according to 32 per cent of respondents, some of whom also stated that a cycle of slowdown is likely to be a common experience for businesses during this time, although 23% believe that growth is still possible.

Low oil prices (71%), geo-political instability (44%) and lower government expenditure (45%) will be the most important economic issues over the next 12 months. Decreased economic growth rates will continue as a result of the low oil prices and political volatility according to 23 per cent of respondents. Efforts to diversify revenue streams and lower dependence on oil have also been identified as a significant issue for the GCC over the coming year.

54 per cent expect further declines in the sovereign credit ratings of GCC countries.

Increased debt raising activities across the market are anticipated by 82 per cent of respondents.

Equity markets in Bahrain and Saudi Arabia will be the most affected markets in the GCC, accoriding to 64 per cent of respondents. Dubai was rated as the most positive in terms of outlook, with 35 per cent of respondents confident of strong performance.

The same proportion of CFA professionals believe that investor confidence is as low as it was during 2008/09 as those who believe that the overall sentiment is currently more positive (29% and 28% respectively).

Almost all respondents (91%) believe that it is important for GCC nationals to undertake professional qualifications because it is vital for the regional economy to have a local population with internationally-recognised credentials, which currently is not the case.

The outlook for the Euro will continue to be negative over the course of 2016, according to 48 per cent of respondents. The Eurozone’s economic and refugee crisis could be a catalyst for the poor performance of its currency according to CFA members. Additionally, 42 per cent feel the same way about the British Pound due to the looming threat of a Brexit.

The survey results were unveiled at a media roundtable a day ahead of the 2016 Middle East Investment Conference (MEIC), which is taking place in Bahrain for the second time on 13th April 2016. The MEIC brings together international thought leaders, policymakers, industry experts, and key market participants from across the region to reflect on this year’s theme “Beyond Borders: MENA’s Role in the Global Economy”. The conference’s key speaker will be Lord Adair Turner, chairman of the Institute for New Economic Thinking, Yousef Abdullah Al-Benyan, vice chairman and CEO of SABIC and Shaikh Khalifa bin Ebrahim Al-Khalifa, Chief Executive Officer of Bahrain Bourse.

An online survey was conducted from 1 March to 23 March 2016. Participants included 117 CFA Institute members, as well as those with charters pending, in Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

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