Dhafer Sahmi Al Ahbabi, Chairman of Al Ramz Corporation, shares his views on economic conditions and capital market projections across the region.
Monday 15, April 2019
What are your views on the current financial and economic landscape?
Global economic growth is largely expected to moderate in 2019 to approximately 3.3 per cent from 3.6 per cent in 2018. This will be the third year of growth moderation for the global economy driven mostly by advanced economies as their late cycle corporate earnings growth slows.
However, the US Federal Reserve has recognised this, and abandoned interest rate hikes in near term. With interest rates remaining at current levels, the US Dollar strength we saw in 2018 will abate and corporates around the world will benefit as cost of funding stabilises after rising at the fastest pace last year in over a decade.
Emerging market economies will see the most of that benefit with the IMF expecting emerging economies to grow 4.8 per cent in 2020 faster than the anticipated 4.4 per cent in 2019. This will be the first uptick in growth in emerging economies growth since 2017.
How do you see the Middle East fitting into this picture?
The Middle East is well-positioned to benefit from the upcoming uptick in emerging economies growth anticipated for 2019. Since the fall in oil prices in 2014 oil producing countries have implemented measures to strengthen their fiscal budgets and stimulate their economies.
A sizeable sum of these measures will begin to affect their underlying economies post 2020. Recent rally in oil will also improve overall economic conditions.
What sort of challenges do you foresee for the year?
In the UAE, real estate remains under pressure in 2019 as peak deliveries are expected this year to increase supply further. This will continue to place pressure on the construction and property sectors in the country that make up over a third of total employment.
With such a large percentage of the work force affected this will spillover to most other sectors in the country impacting corporate earnings for the year.
How do these pressures impact corporates in this region? And how would you suggest to mitigate this?
Patience is key this year for corporates. With peak interest rates likely behind us now and US Dollar strength expected to abate, corporates will be rewarded by delaying accessing credit markets for financing to the latter part of 2019.
This will give them the opportunity to raise funds at better cost of funding giving them the ability to participate in the uptick of growth in emerging markets in 2020 on a better footing.
What thematic trends do you see developing for the banking and finance sector over the next 18 months?
The banking sector’s growth in earnings over the past two years has been driven primarily by contraction of credit cost as asset quality improved and cost of risk moved towards normalisation. Such contraction is not projected to be there for banks in 2019 as a catalyst bottom line growth.
Fortunately, banking liquidity has increased over the past year with loan to deposit ratio dropping to the lowest since 2011. In 2019, banks are expected to utilise this excess capacity and expand their loan books to meet their growth targets for the year. This will help boost the economy as banks expand their loan books.
What are your projections on the debt and equity markets in the MENA region? Where are the opportunities?
The Saudi market has been the best performing equity market in the MENA region with their inclusion into MSCI and FTSE Emerging Markets indices this year. Foreign flows have lifted the Saudi market to rich valuations. The UAE equity markets remains one of the most attractive markets for investors.
This opportunity will unlikely last for too long as Emerging Markets globally come in favour with global investors. In debt markets, US dollar bonds from GCC states are to be included in JP Morgan’s Emerging Markets Bond Index this year, attracting sizeable inflows and tightening credit spreads.
With interest rates expected to be stable to lower going forward those bonds also present a good opportunity for investors to get some good yield.
What is your growth strategy for Al Ramz? Where do you see your business going in the next couple of years?
Our growth strategy is focused on enhancing our value proposition to our valued customers. We invested over the last two years in the refinement of our offerings as well as the introduction of complementary products and services designed to cater to the needs of our customers. We expect our asset management and brokerage service lines to benefit greatly from flows towards the attractive UAE debt and equity markets.