Wealth Monitor_November 2015

www.wealth-monitor.com November 2015

VOLUME: 01 | ISSUE: 07

Face Value

HE Ebrahim Al Zaabi,
Director General,
Insurance Authority

MARKETS WHAT’S
COSMOS HOT

Oil: Back into Boomerang
the Black? Effect

BULLS VS BLUE CHIP
BEARS
Cat Bonds: Safe
Are Asset Managers Back As Houses?
to the Drawing Board?

MASTERING THE TECHNOLOGY
MARKETS TRENDZ

Offshore Fund Predictive
Structures Analytics

Unlocking the Value

How GCC Asset Managers are
Navigating the Investment Maze

16-17 November, 2015. Burj Al Arab, Dubai, UAE Strategic Partner

Consulate General of India
Dubai

H.E Marwan Bin Hon. Shri. Arun Jaitley H.E. Sharief Al Awadhi
Jassim Al Sarkal
0LQLVWHURI)LQDQFH&RUSRUDWH$σDLUV Director General, Fujairah
CEO, Sharjah Investment Information, & Broadcasting, Government Free Zone Authority
and Development Authority
of India
(Shurooq)

Inauguration & opening address by Hon’ble Minister of Finance, Shri Arun Jaitley

THE TRILLION DOLLAR OPPORTUNITY

Sharing India’s vision for Prosperity, Innovation and Partnership

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KEY SPEAKERS

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November 2015 EDITOR’S FLOOR

VOLUME: 01 | ISSUE: 07 “Only when the tide goes out do you discover who’s been swimming
naked.”These golden words of Warren Buffet have perhaps never been
WmEAoLnTiHtor more relevant than now. Back before the financial crisis, you as an
Get Your Money’s Worth investor could get a decent rate of return on something as simple and secure
as a mutual fund.
www.wealth-monitor.com
Publisher But now? Forget about it.
Semantics Global Media FZ LLC All of that global financial mayhem and equity markets meltdown has done
two things — it’s pushed down the investment yield, and has brought more
Office139, Building10 risks with investments. But even if the current global market conditions have left
Dubai Media City investors and asset managers grumble and groan about the industry, there’s a
PO Box 500683 silver lining in all of this especially when it comes to the GCC region. The opening
Dubai, U.A.E of Saudi stock market to direct foreign investment this year marks as a very
T: +971 4 2766080 F: +971 4 2766081 significant milestone for the development of regional markets and the overall
[email protected] | www.semantics.ae asset management industry. However, the more direct impact of this opening is
expected to be visible when the kingdom’s stock market is likely to be included
Editor in Chief in the MSCI Emerging Market Index in a few years from now.
Arshad Khan | [email protected] No doubt challenges are plentiful. For one, industry experts say there is limited
opportunity available to a retailer or institutional investor in the GCC region
Editor making it difficult to bring greater flow into products. The asset management
Sunil Kumar Singh | [email protected] industry in the region not only has a limited product offering, those products
are sub-scale that limits the asset management firm’s profitability. This in turn
Research Analyst impacts the ability of the industry to innovate. So are regional asset managers
Nidhi Modi apprehensive about revenue growth for the coming year, at a time when
liquidity is getting tightened? Read it in our ‘Portfolio’ section.
Contributors Meet His Excellency Ebrahim Al Zaabi, Director General, Insurance Authority,
Ashley Freeman UAE, in the‘Face Value’section of this issue. In an exclusive interview with Wealth
Dr. Garbis Iradian Monitor, His Excellency says UAE nationals are starting to realize the benefits
Bruce Powers, MarketsToday.net of being insured and more and more nationals are obtaining life insurance
Tradepedia policies. In the ‘Bulls Vs Bear’, four experts, namely, Rami Sidani, Head of MENA
IFA Global DMCC, Dubai Equities, Schroders Investment Management, Dubai; Nick Tolchard, Head of
Marmore MENA Intelligence, A subsidiary of ‘Markaz’ Invesco Middle East; Saleem Khokhar, Head of Fund Management, Global Asset
Management, NBAD; and Zak Hydari, CEO, EIIB-Rasmala discuss the issues facing
Marketing & Advertising the GCC region’s asset management sector and do a prolific brainstorming to
George Wahba | [email protected] identify what’s next for the industry.
M: +971 50 9800 630
Happy reading!
Eugene Rodrigues | [email protected]
M: +971 50 4686 038 ARSHAD KHAN

Subscriptions Editor in Chief | [email protected]
Diana Kardava | [email protected] www.semantics.ae | www.wealth-monitor.com
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Disclaimer

All content published in Wealth Monitor is for information purpose
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accuracy and correctness and any error or omission shall not be made

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without the written permission from the publisher.

P.14

Turnaround Story

How the Gulf’s Asset Managers are
Creating Innovative Investment
Strategies and Unlocking the Value

P.36 In Focus P.10 Bulls vs Bears

Noor Bank Back to the
Drawing Board?
P.40 Blue Chip
P.24 The Prequel Before
Cat Bonds the Storm?

P.45 What’s Not Metal Prices Crawl Back but Skepticism Prevails as the
Real Recovery is Still Far Away
The Weak Performance of Hedge
Funds Raises Questions www.wealth-monitor.com | November 2015

About their Ability to Generate
Returns in Uncertain Times

P.50 Dashboard

Data on Mutual Fund Assets
in GCC, Estimated Pension
Fund Assets (mid-2015), Fund
Managers Per Country, Asset
Weighted Returns of Funds, Top
Five Fund Managers and Fund
(AUMs) Summary of KSA and UAE
Asset Management Industry

P.56 The Last Laugh

Fund Fundamentals

P.04 Opening Bell P.08 Face Value

Major News Stories From Around HE Ebrahim Al Zaabi,
the Region Director General,
Insurance Authority
P.21 Markets Cosmos
Oil rebounded to
News and Data on Precious Metals, 4-month high last
Base Metals, Energy, Agri/ Soft, month. What next?
Currencies and Arabian Bourses
P.28
P.43 Markets Rewind
The New
History of Capital Markets Normal

P.44 What’s Hot An Upside in Agricultural
Commodity Prices is
Investors Seem to be Tiptoeing Back Expected in the Short
Into Major and Emerging Markets Term
Equities. But is it Really a Recovery?

P.46 Mastering the
Markets

SICAVS Vs OEICS

P.38 Taking Stock

Offshore Funds

P.48

Technology Trendz

Predictive Analytics

P.30 The Agony or the Ecstasy? P.22

Currency Markets Continue to Fallen
NovWemibtenre20s1s5V| wowlawt.wileiatltyh-Amhoneitaord.coomf the Angel
Rising
Looming US Fed Meet
Gold Prices have
Rebounded Sharply
on Weaker Dollar and
as US Rate Hike Fears
Wane. But is it a False
Dawn, or the Bullish
Trend will Continue?

OPENING BELL

News

In Numbers

“We have announced more AED 4.29b $1.48b
than AED3.1 billion worth
of construction contracts in The group net profit The gross written
the last three weeks alone, of FGB for the first premiums of Qatar
highlighting our commitment nine months of 2015, Insurance Company,
to contributing positively and up 4% from AED 4.11 the parent company of
effectively to Dubai’s real billion in the same Qatar Re and Antares,
estate sector.” period last year. for the first nine months

- Ali Rashid Lootah, Chairman, AED 190m of 2015.
Nakheel
The consolidated
net profit of Deyaar

Development for
the nine-month
period of 2015.

44% $2.73b
The amount
The year-to-date growth

of passengers travelling healthcare providers

4 between Abu Dhabi and in the MENA will

the USA, according to the spend on IT products

latest passenger figures and services in 2015,

released by Abu Dhabi says Gartner, Inc.

International Airport.

www.wealth-monitor.com | November 2015

OPENING BELL

“We generated a stable AED 6b
income stream, raised
the market value of our The total automatically
assets and increased the collected amounts of
occupancy rate across our revenues by the Federal
portfolio.” Government via the
eDirham system in the
- Sylvain Vieujot, Deputy first 9 months of this year
Executive Chairman, Emirates (January to September
REIT 2015), up 15% from 5.1
billion in the same period of

2014.

AED 3.61b 11% $126b

The net profit reported The decline is Dubai’s The size of the GCC’s
by Nakheel for first nine villa prices over construction sector set
months of 2015, up 39% on the year to August, to reach in 2016, up 38%
same period last year. according to JLL. over 2013, according to

$2.4b Alpen Capital.

The net profit posted 5.25%
by QNB Group for the
9 months ended 30 The compound average
September 2015, up by growth rate in Dubai’s
9% compared to last
year. hotel room supply
between 2006-2015,
according to STR Global.

$15 billion AED 128b 5

The size of e-commerce The total value of
market in the GCC in 2015 DFM-listed securities
that is climbing by nearly
five-fold over the past five accessible for
years, from $3.3 billion in foreign investors,
2010 to $15 billion this year, equivalent to 39% of
according to AT Kearney. the Market Cap.
according to STR Global.

November 2015 | www.wealth-monitor.com

OPENING BELL

News That Made Headlines

Number of flyers Revealed: Which Tourists Visited
on Abu Dhabi-US Dubai the Most?
route soars 44%
11% fewer Germans
The year-to-date growth of passengers visited. Most notable
was the 15% decline
travelling between Abu Dhabi and the in Russians, who due
to domestic economic
USA has increased by 44%, according to The tourism market in Dubai challenges and the
continues to be dominated by resultant impact on
the latest passenger figures released by visitors from the Kingdom of the exchange rate, has
Saudi Arabia, India and the United resulted in the mid
Abu Dhabi International Airport. Traffic Kingdom. Saudi Arabia drove the and upscale Russian
largest number of visits to Dubai market seeking better
to and from Australia surged 27.3%, and in 2014 (1.5 million visits), followed value destinations.
by India (0.9 million visits) and the Visits from China
between the UK and Germany it rose by UK (0.8 million visits), according to and Iran grew at 24% and 41%
the latest ‘Middle East Hotel Market respectively indicating a growing
24.8% and 17.2% respectively. Overall, Insight Report’ by Deloitte and STR appeal for Dubai from these source
Global. markets. Dubai’s hotel room supply,
Abu Dhabi International Airport reported according to data provided by STR
Arrivals to Dubai in 2014 from the Global, was 369 hotels in July 2015
a strong 18% growth in passenger traffic USA fell by just over 3% and almost which reflects a compound average
growth rate (CAGR) of 5.25% from
over the first three quarters of the year, the 233 hotels in 2006. Over this
period the number of rooms in
with a total of 17,473,063 passengers. The Dubai rose from 39,000 (2006) across
all sectors of the market to 75,600 in
top ten busiest routes for the first nine July 2015.

months of 2015 included the UK, USA,

Saudi Arabia, Australia, Qatar, Thailand

and Germany. Total aircraft traffic was

also up 14.3% in the first three quarters

of the year, in which AUH successfully

facilitated 129,703 aircraft movements, a

statement said. Fed rate hike delay to benefit UAE stock
markets: Saxo Bank
Eng. Ahmad Al Haddabi, Chief

Operations Officer at Abu Dhabi Airports

said: “2015 has been a big growth year

for us. September was another very busy The delay in Fed rate hike will act Chief Economist & CIO, Saxo Bank told
as a catalyst for emerging markets Wealth Monitor in an email statement.
month and the third consecutive month like the UAE. However, on a yearly
basis, the GCC market performance is On a year-to-date basis, most of the
in which we welcomed over two million going to remain muted, a top official gulf’s markets are in the red. However,
of Saxo Bank has said. “The Fed not asked on the outlook of the regional
passengers. Increased global connectivity hiking is the catalyst for unlocking markets going forward, he said,
some of the emerging market values. “Performance will be down year-over-
continues to be an important contributor A stable to lower USD will support year but we have seen big corrections
emerging market growth through in emerging markets and it remains
to our overall success, and we are seeing lower debt burden (US financed debt) the only asset class where both price
and stable growth,” Steen Jakobsen, and value is cheap relative to the
a dramatic boost in demand across the long-time average.”

vast majority of destinations served

6 from AUH.”The airport moved 621,191
metric tons of cargo during the first nine

months of the year, with overall cargo

traffic up 7.2%.

www.wealth-monitor.com | November 2015

OPENING BELL

The Best From www.wealth-monitor.com Most Read on

To read more of our web specials, log onto our website. www.wealth-monitor.com

UAE only Gulf country to add refining 1 Saudi Arabia’s fiscal deficit to increase
capacity this year: APICORP to 16% of GDP this year, cautions S&P

No other country in the GCC region and others cancelled. However, 2 UAE tops in MENA region as most
will have additional crude oil refining between next year and 2020, business-friendly country: World Bank
capacity coming online this year, except the UAE along with other GCC
the UAE that will be adding 417,000 b/d countries, namely Saudi Arabia, 3 Emirates NBD’s net profits up 27% on
additional capacity, a senior analyst from Qatar and Oman will add 400k higher income and lower provisions
APICORP (Arab Petroleum Investments b/d, 146k b/d and 82k b/d
Corporation) stated. “The additional refining capacity respectively, 4 Revealed: The Wealthiest Countries
refining capacity in the UAE in 2015 the report added. in the Middle East
will be via the already complete Ruwais
facility coming fully on line,” the analyst, Asked whether the UAE 5 Low Trading Value Pulls DFM’s Profit
who preferred to be anonymous, told going ahead with adding Down 60% y-o-y
Wealth Monitor. capacity an indication that
it’s least impacted by oil price 6 Revealed: The top 5 Islamic banks
APICORP had recently come out with slump in the GCC region, the in GCC
a report saying the oil-price collapse analyst said, “Each GCC member state has
since mid-2014 has curbed investment its own unique economic circumstances 7 More pain in the offing for Chinese
in the GCC region over the medium term to consider when building energy banks, warns IIF
with some projects being pushed back infrastructure. We continue to see robust
investment from the Emirates, however 8 Domestic debt markets key to
we also see new refineries in advanced strengthen Gulf economies: IMF
planning stages in Oman, Qatar and
Saudi Arabia.” Also, when asked whether 9 ‘Hospitality, tourism and
freeze on capacity addition in other construction to benefit most from
countries of the GCC in 2015 will have UAE’s new labour rules’
any effect on the supply-demand
balance of crude oil, the analyst said, “It 10 October 19, 1987: The ‘MON’day
is true that we have lost much refining that brought investor sentiment
capacity due to conflict, but the market down to its knees
is currently oversupplied with products
(particularly diesel) and hence the impact wealthmonitor wealthmonitor wealth-monitor
of closures is not being felt strongly.”
wealth_monitor wealthmonitor

DFSA hosts workshop on fundamentals of Wealth Monitor October Poll
Islamic banking and finance
Do you believe the US Fed is going to
The Dubai Financial Services Authority Specifically tailored for UAE Nationals raise interest rates this year? 7
(DFSA) hosted on October 26, 2015 a from universities and government
workshop on Islamic finance, as part of entities across the UAE, the workshop Yes
its Bawabaty ‘My Gateway’ initiative that covered areas of Islamic business ethics, 50%
was launched last year with the aim to Islamic economics and introduced
meet the needs of UAE Nationals wishing participants to the views of renowned No
to pursue a career in financial services; to scholars. 30%
provide lifelong learning opportunities
for local community; and to support The workshop was highly interactive, Can’t say
community education in financial and participants completed a written 20%
services. assessment at the end of the workshop.
To vote, log onto www.wealth-monitor.com

November 2015 | www.wealth-monitor.com

FACE VALUE | HE Ebrahim Al Zaabi

‘Several Measures to Increase
Insurance Awareness’

In an exclusive interview with Wealth Monitor, HE Ebrahim Al Zaabi, Director General,
Insurance Authority, says UAE nationals are starting to realize the benefits of being insured and
more and more nationals are obtaining life insurance policies

The UAE’s life insurance segment has the
highest penetration rate in the GCC region,
though it remains under penetrated when
compared to more developed economies.
What are the steps being taken by Insurance
Authority to increase awareness as well as
insurance penetration?
It is unfair to make comparison between
developed insurance markets where centuries
of experience behind them and newly emerging
insurance markets where decades of experience
are behind them.

The IA of UAE is taking several measures to
increase insurance awareness. The most important
of which is the Regulation of Takaful Operations.
This step was necessary to avail another alternative
to certain sector of our society who would like to
deal according to Islamic insurance conception
only. Moreover, specialized conferences will be
organized with the different economic sectors
(industrials, traders, professionals …) in order to
explain the role of insurance in the protection of
their activities.
The volume of written premiums across all
insurance segments in the UAE increased to
AED 33.5 billion in 2014, up 13.5% compared
to 2013. How do you assess the performance
of different segments, namely, life insurance,

8

www.wealth-monitor.com | November 2015

FACE VALUE | HE Ebrahim Al Zaabi

motor insurance, health insurance, already regulated (Regulations No. (8) Of
marine insurance, fire insurance, accident 2011) Insurance Brokers professions has
insurance, among others? Which one is also been regulated (Regulations No. (15) Of
the fastest growing? 2013). The IA has prepared a new regulation
Health insurance is obviously the fastest for insurance producers.
growing class of insurance for well-known
reasons. Life assurance witnesses a satisfactory All theses professions are considered a
rate of growth. Medical malpractice is major sector of the insurance market. Their
expanding. ‘Contracting all risks’ and ‘erection activities should be well regulated and
all risks’ are making good performance. thoroughly supervised.

The Cabinet on Aug 30 this year issued Foreign insurers have a lion’s share The INSURANCE
a resolution granting the insurance (81.4%) of the total underwritten AUTHORITY of
companies in the UAE in the combined premiums of life assurance AED 8.6 UAE is taking
business of insurance of persons and fund billion last year, compared to the national
accumulation operations along property companies’ share of a meager 18.6%. several measures
and liability insurance a period of one What are the reasons for that? Is it to increase
year to regularize their positions. How because they have higher technical know-
this step will help develop the insurance how, greater distribution capabilities, INSURANCE
sector in the UAE? are more customer oriented and are awareness. The
Article (25) of the federal law No. (6) Of financially better equipped? most important
2007 is prohibiting the cumulating of life This phenomenon is well understood in the
and non-life operations in one insurance Arabian Gulf area due to the demographic of which is the
company. 8 years elapsed and one more year structure. Millions of expatriates are normally Regulation of
has been granted for insurance companies insuring their life with their National
to regularize their position. This step will be Insurance Companies through their branches Takaful Operations
a factor of development by transacting life in UAE.
assurance by specialized companies and a 99
factor of security by not cumulating both UAE nationals are starting to realize the
classes. benefits of being insured and therefore we
notice more and more nationals are obtaining
Several rules and regulations have been life insurance policies. They have the two
issued by the Insurance Authority to alternatives: The traditional insurance and the
govern and streamline operations of the Takaful Insurance. Therefore, it is not a matter
insurance agents. Do you believe this is an of financial position or Technical capabilities of
area that still needs further directives? local or foreign insurers.
In UAE insurance market, we have insurance
agents, insurance Brokers and insurance
producers. Insurance agents profession is

November 2015 | www.wealth-monitor.com

BULLS VS BEARS | Asset Management

BDacrkawtoingthe
Board?

Is the Gulf’s asset management industry challenging the status quo and charting the new growth
10 path, or is it time for it to start afresh with a clean slate? Is being too cautious turning bad for fund

houses seeking global growth opportunities? Four industry experts do a prolific brainstorming to
identify what’s next

www.wealth-monitor.com | November 2015

BULLS VS BEARS | Asset Management

It’s been a lousy year for asset managers Are regional asset managers the unique characteristics of and the
globally. The world slithered down to apprehensive about revenue growth for major challenges for the region’s asset
a fear territory as the global financial the coming year, at a time when liquidity management sector; how the region’s
mayhem swept across the emerging is getting tightened? Are they forced to asset management industry can chart
markets. The US Fed flip-flop over hiking cut fees as returns are getting shrunk and strong growth in the times to come;
the rates, the slowdown in China and margins squeezed? the outlook for the GCC and the wider
the Chines equity markets meltdown, oil Middle East region from investment and
prices lying low and subdued investor Wealth Monitor invited a panel of asset management perspective; how
sentiment meant that asset managers had industry experts to discuss the issues regional fund managers are trying to
a tough time thriving in the real world. But facing the GCC region’s asset management differentiate in these times, and the trends
at a time when humbled asset managers sector. The experts discussed a full in products, customers and distribution
are licking wounds amid slump, how are range of issues such as, the key areas and operations.
their GCC peers positioning themselves? of opportunity available to asset
management industry in the region; And here’s what they had to say….

Rami Sidani, Head of MENA Equities,
Schroders Investment Management, Dubai

Institutions Stay for Long Gulf markets is the availability of large 1111
The investment strategy of large pool of liquidity. In sharp contrast to many
institutional investors in the GCC region emerging markets which rely on FIIs or
such as SWFs hinges much on diversifying foreign capital, regional markets in the
away from the region. This leaves most GCC continue to be driven by local and
of the equity markets in this region retail investors. Although foreign investor
dominated by retail investors and high participation is on the rise, it remains
networth individuals (HNWIs). This is a relatively small compared to the market
unique trend in the Gulf, compared to cap. The vast pool of liquidity in the region
other markets around the world where means less correlation with the global
pension funds, insurance companies financial markets. This also means local
or other institutions that dominate the investors would continue to dictate local
investor base. In Saudi Arabia, for instance, market movement more than foreign
HNWIs represent a big chunk of stock investors. It’s also interesting to note that
market investors. the size of the mutual fund industry that
is dedicated to the markets in the GCC
However, we consider this as a natural region is relatively small compared to the
step in the development cycle of a young equity market capitalization as well as to
market such as the GCC. The Gulf markets the size of the regional economies.
are still in an evolutionary phase having
originated as recently as 12-13 years ago. Regulations Differ
As these markets mature, there’ll be more From the distribution perspective, the
of institutional money flowing in these difference in regulations governing asset
markets that would in turn add depth management in different markets in the
and efficiency and reduce volatility in region means it is not easy to distribute a
these markets. The investor base of our fund across different markets. Distribution
GCC and Middle East-focused mutual of one fund, whether locally domiciled
funds is mostly comprised of institutions, or internationally (Schroders funds
European and global, as well as local. One are domiciled in Luxembourg), across
positive trend is that despite the spate multiple jurisdictions in the Middle East
of recent volatility in regional markets, markets therefore is a big challenge for
there hasn’t been any material outflows asset managers. However, we believe
of institutional money from the funds as transparency, corporate governance
that we manage. This is a very positive for and the regulatory structure develops in
these markets as this signals institutions this region, asset managers would find it
from Europe and Asia are here to stay for a easier to grow in these markets.
longer term.

Abundant Liquidity
Another unique but positive factor in the

November 2015 | www.wealth-monitor.com

BULLS VS BEARS | Asset Management

Nick Tolchard, Head of Invesco Middle East

Responding to Investors’ Needs is Key Globally Consistent Fee Structures
The total investable assets in the GCC Generally speaking, this region has
region are estimated to be in the range not focused much on the fee structure
of $2-$3 trillion. Much of this asset base compared to other regions around
is held by Sovereign investors whose the world. Whilst fund managers in
assets are connected to oil driven developed markets have been facing
budget surpluses. If oil prices are below more pressure on the fees they charge
$40 per barrel over a 2 year period then from their investors, in this region the
oil linked Sovereign investors globally focus is rather more on performance.
are saying there is some withdrawal Nevertheless, we observe global fund
risk. Otherwise the industry’s ability managers operating in the region have
to respond to investors’ needs and globally consistent fee structures and
innovate new products appropriate practices.
for local investors are other key issues
being faced. Historically investors in the Local Market to Increase in Size
region haven’t focused on investment Because of the focus on international
across diversified local asset classes nor diversification by private individuals
by using financial advisors. Furthermore in the region, assets have flowed into
investors have often sought to invest product provided by global asset
outside the region. We believe that as managers. Local investing has often
the local asset management industry been direct into local bonds and IPO’s, or
develops, there will be more investors real estate. As local capital markets offer
who will be comfortable in reaching out more investment choice, and we see the
to intermediaries and a clear regulatory development of local pensions’ vehicles
structure will be helpful. then we would expect the local asset
management market to increase in size.

Saleem Khokhar, Head of Fund Managament, Global Asset Management, NBAD

Rigorous Due Diligence a Must of these instruments on their portfolio in

The high degree of inter-dependency no uncertain terms. This is a significant

in today’s global financial world trend that was not fully understood

has necessitated the need to gauge by fund managers prior to the global

counter-party risks and thereby making financial crisis.

investment decisions increasingly

important. Before investing in an asset Stay Away From Correlated Assets

class or sector, it’s important to do The key now is not to put all your

rigorous due diligence, such as looking investments into one high-risk

at the levels of debts on the balance investment class. Rather, diversifying

sheets and the cash flow generation, across a number of asset classes and

through the effective use of in-house across a number of geographies is more

research and analysis teams and not preferable. Also, in order to spread out

overly relying on external parties. the risks, it’s important to stay away from

Additionally, it’s now pertinent to be putting all your money in asset classes

cautious while investing in complex that are highly correlated. For instance,

12 financial instruments such as derivative NBAD has recently launched the Frontier
products. Fund managers must make Markets Fund with the geographic

sure they fully understand the impacts focus on Africa and Asia. The correlation

www.wealth-monitor.com | November 2015

BULLS VS BEARS | Asset Management

of that fund to the MENA region, or to have stability in oil prices for the
emerging markets or global markets is investor sentiment to improve. We believe
extremely low. there are still a lot of opportunities
available in the MENA space along with
Markets at Attractive Valuations the emerging markets that offer long-
Middle East markets are at attractive term opportunities. Frontier markets
valuations with many of them being offer low correlation with the rest of the
at a 5 year-low levels. We believe this world, and therefore, investors could go
is a significant opportunity for asset for a reasonable amount of exposure in
managers. Having said that, it’s important frontier markets.

Zak Hydari, CEO, EIIB-Rasmala

Pension Funds Reform Biggest Driver going up, driven by regulatory changes
Taking a macro view, the economic in the region. In the last few years, the
growth of the region will remain a regulatory framework related to asset
critical factor for the asset management management has developed quickly in
industry. Low crude oil prices and the UAE and the region. This framework
liquidity are other key determinants. is related to launching a fund,
However, in the short term, a low crude distribution, compliance requirements,
oil price scenario is unlikely to feed etc. Whilst these regulatory
into the asset management industry. developments have raised the industry’s
Another factor that would determine standards, they have also had an indirect
the growth pattern of the industry in the impact in terms of increasing the cost of
region is how the concept of retirement doing business. This has impacted the
shapes up in the next 10 years and the profitability of the asset management
role of regional governments in creating industry.
larger pools of capital to fund retirement
for their citizens, and possibly for the Foremost Challenge Is Scale
expat population. This would have a If you look at asset management in the
significant impact on fund flows into the MENA, its AuM is estimated to be just
region’s asset management industry. In $60 billion, which is much smaller than
particular, reform of regional pension many markets globally. Further, in the
funds would be the single biggest driver region, there is lack of single large funds
for the asset management industry in available to investors. This is in contrast
the region. Going forward, how pension to many western markets, where the
funds are organized, the legislation asset management industry has very
structure, how funds are mobilized large funds spanning multi-billion
and invested are likely to be the key dollars of AuM. In contrast, in this region,
developments to look out for. some of the biggest asset managers
only have a few billion dollars under
Fund Management Costs Going Up management. Another large challenge
We have seen fund management costs is innovation.

Wrapping Up 1133

The Gulf’s and the wider Middle East’s asset management industry is moving away into the uncharted territory, especially in
terms of product innovation and investment strategy that, in turn, has also altered the way investors view the traditional portfolio
management. However, while arduously climbing the value chain, it’s critical for asset managers to focus not just on the ROI they
aim to bring on the table but also to ensure their clients and fund investors are familiar with the risks involved. Extreme and risky
path will not only jeopardize the investment objective, but would also raise questions about asset managers’ ability to generate
return, something that the fledgling asset management industry of the region can ill-afford to ignore.

November 2015 | www.wealth-monitor.com

PORTFOLIO | Asset Management

Assets or
Liabilities?

14

In the age of rising correlations and herd-like investing, creating investment solutions to
deliver consistent alpha is proving tough nut for global asset management industry. How

the Gulf’s asset managers are riding into a headwind? Finds out Sunil Kumar Singh
www.wealth-monitor.com | November 2015

PORTFOLIO | Asset Management

Buy low, sell high: It’s much easier said period July 2014 – July 2015 followed by Management, Global Asset Management,
than done. Even investment pros Daman Investments PSC with a return of NBAD, says, “I believe in the region there’s
and asset managers, who profess to 20.03%. The benchmark - MSCI UAE Index lot more focus of asset managers now
beat the odds, find it difficult sometimes - registered negative returns of 14.5%, on risk management, liquidity, having
to walk the talk when the markets turn data by Marmore, MENA Intelligence, a an in-house research analyst team that
topsy-turvy. In the current tumultuous subsidiary of Markaz reveal. does due diligence and the groundwork,
conditions when all GCC equity markets unlike in the past when a lot of investment
are in the red on a year-to-date basis, how Diversification Pays Off decisions were driven by momentum-
asset managers are coping with it? While So where GCC’s asset managers are driven strategies.”
globally, asset managers are downbeat putting their clients’ money to work? What
in their outlook, as their fear of clients is showing results — portfolio churning, On the part of fund managers, the
pulling money from markets is coming client management, diversification, risk current market dynamics demand them to
true, are the Gulf region’s asset managers management especially gauging counter- be more of active managers than passive,
any different than their global peers? party risks, due diligence, active or passive say experts. And there are reasons for that.
fund management, liquidity, valuations, or
Governments across the Gulf have a mix of all? The GCC equity markets are dominated
reaffirmed their commitments to go ahead by retail investors who don’t often
with the planned capital expenditure to According to the latest survey by structure or look at the underlying
keep the infrastructure development on fundamentals intensely. This often
track, despite the oil price decline. This is
a major support for regional markets that The GCC equity markets are dominated
has also kept investor sentiment stable. by RETAIL INVESTORS who don’t often

The asset management industry in structure or look at the underlying
general encompasses a diverse range of
asset classes ranging from mutual funds, fundamentals intensely. This often leads
private equity, alternatives, REITs and them to be at the receiving end
structured products, amongst others.
However, mutual funds have a relatively Dubai-based market intelligence company leads them to be at the receiving end 1155
low proportion of investors’ portfolio in Insight Discovery, released last month, as they end up getting mispriced assets
the GCC and the wider Middle East region. 56% of the region’s advisers anticipate that would be either overvalued or
lifting clients’ allocations to global undervalued, they say. “Fund managers
But despite the GCC markets trading developed markets equities in the next in the region therefore need to be more
into negative territory so far this year, 12 months. Nearly as many as 48% will of active managers than passive, i.e.,
the performance of some funds has increase allocations to emerging markets doing fundamental research and proper
been outstanding. For instance, the top equities. valuations of stocks they are investing
five Saudi conventional equity funds their clients’ money in, reasons Khokhar.
outperformed the Saudi TADAWUL Index Some asset managers believe there
which increased by 0.4% in the past 1 is more macro analysis that is coming Having said that, he continues, we do
year (June’14 – June 15). MEFIC IPO Fund into the picture in asset managers’ recognize some instances when passive
was the best performing conventional decision-making process. Also, for fund strategies would also work well, especially
fund for the year with a gain of 42.26%, investors, it’s always good to have a when fund managers’ objective is to have
followed by Morgan Stanley Saudi Equity diversified portfolio and a fund manager market exposure for a long period of time.
Fund with a gain of 32%. In UAE, Carrera shouldn’t ever be 100% in equities or This begs a question: How much of an
Asset Management Co Ltd.’s Carrera bonds. As Saleem Khokhar, Head of Fund upside potential is there at this point and
Qatar Abu Dhabi Equity fund generated
the highest return of 28.34% for the

November 2015 | www.wealth-monitor.com

PORTFOLIO | Asset Management

Top 5 Equity Funds in UAE

1 Yr. Return (July 2014 - July 2015)

Carrera Qatar Abu Dhabi Equity Fund 56%
Daman Second Emirates
CAM Dubai Abu Dhabi Equity Fund 56% of the
ADCB Al Nokhitha region’s advisers
Emirates Gateway
28.3% 20.0% 19.0% 14.1% 13.4% anticipate
lifting clients’
Source: Zawya, Marmore tough for asset managers, whether based allocations to
in the region or elsewhere, regional asset global developed
what asset managers should do in these managers are riding significant tailwinds. markets equities
tough times? One of these tailwinds is the abundant
liquidity that is sloshing around, and in the next
Shifting Sands second, the opening of Saudi Arabia to 12 months
Let’s dig in a little to what regional asset direct foreign investment coupled with the
managers are really doing to brace inclusion of UAE and Qatar to ‘Emerging
themselves for tough times. No doubt, the
financial blow has proved to be particularly

‘Great opportunity for regional investors to diversify’

Last month, Nikko Asset Management had launched a Luxemburg-domiciled
Asia ex-Japan Equity UCITS fund that will allow Middle Eastern investors to tap
into investment opportunities in Asian markets. Peter Sartori, the firm’s Head of
Asian Equities, tells more

Give us a brief background about We have great hopes for the region. In the in a portfolio of 40-60 mid- to large-cap

Nikko Asset Management and your case of the UAE for instance, the growth stocks issued by companies in the Asia ex-

investment strategy. between now and 2020 is going to be Japan region, primarily in India and China.

We’re one of Asia’s leading asset managers, significant, though we have to be watchful

offering world-class asset management on the crude oil price trends. Overall, we Do you believe the timing of the launch

solutions for global investors, and holding don’t believe crude oil is going to have is correct given the bearish crude oil

around $161.3 billion in assets under a major negative impact on the growth price and the associated slowdown?

management (AuM). As much as 60% outlook of the UAE, and the region in Given what happened in the Asian

of our AuM is principally comprised of general, given the diversified economy of markets recently with valuation having

Japanese equities, while the rest consists the UAE. Having said that, we’re hopeful significantly come down, we believe it’s a

of 40% ex-Japan assets. Our client base to launch a Middle East-focused fund in great opportunity for regional investors to

is primarily institutional—and the GCC the long-term. Until now, we have served diversify their assets geographically. Nikko

region represents a significant portion Middle Eastern investors not through AM views both markets as mis-priced

of our assets base — with about 15% of funds but through segregated mandates. now that valuations have come down

our ex-Japan AuM coming from the GCC significantly after the recent turmoil. We

16 region. Give us a brief about the fund launched believe this is the perfect time for putting

in October. money in Asian equities. Sentiments

What’s your outlook for the GCC and We launched a Luxemburg-domiciled Asia towards emerging markets in general

the wider Middle East region from ex-Japan Equity UCITS fund, managed by is poor and as such stocks are quite

investment and asset management Eng Teck Tan and myself. The fund will aim attractive in value. Taking a mid to long

perspective? for long-term capital growth by investing term view, this is the right time to buy.

www.wealth-monitor.com | November 2015

PORTFOLIO | Asset Management

Market’ index. Market Index. have a diversified exposure, they are
“A unique but positive factor in the Gulf “The UAE advised by asset managers.

markets is the availability of large pool and Qatar One factor though that cannot be
of liquidity. In sharp contrast to many represent just ignored is need to innovate that could
around 2% of help cushion negative impact of market
One of the MSCI Emerging downturns.
drivers for the Markets Index
region’s ASSET and a greater “Innovating and expanding product
MANAGEMENT direct impact in ranges is a critical factor for the growth
industry is going terms of investor of the asset management industry. In our
to be the ability of interest would own experience, over the last three years,
asset managers arise when our AuM went up from $400 million to
to meet customer Saudi Arabia is $1.2 billion. That was mostly due to new
choice and to included in the products that we brought to the markets,
offer bespoke MSCI Emerging such as leasing and trade finance, where
solutions Market Index. risks are lower and yields are high. We’ve
When that also moved into real estate and have plans
emerging markets which rely on FIIs or happens, Saudi to explore credit solutions,” concurred
foreign capital, regional markets in the Arabia, UAE Zak Hydari, CEO, EIIB-Rasmala, espousing
GCC continue to be driven by local and and Qatar are a positive outlook on the region’s asset
retail investors,” says Rami Sidani, Head expected to management sector.
of MENA Equities, Schroders Investment collectively represent around 5% of MSCI
Management, Dubai. Out of around $1.7 Index by 2017. This would be a major Additionally, he adds, one of the
billion of assets that Schroders manage for factor that would encourage capital drivers for the region’s asset management
its frontier markets-focused equities, Gulf inflows from international investors into industry is going to be the ability of asset
markets represent around 50% of these this region,” adds Sidani. managers to meet customer choice and to
assets. offer bespoke solutions.
Regional capital markets will become an
While the Saudi market officially asset class that cannot be disregarded by Bridging the Chasm
opened to direct foreign investment on International investors. This would create So what future holds for asset managers
June 15 this year, the more direct impact a bigger opportunity for asset managers, in the region? Industry experts believe,
of this opening is expected to be visible he says. the major markets in the GCC -- Saudi
when the kingdom’s stock market is likely Arabia and UAE -- might see diversification
to be included in the MSCI Emerging Innovation, Innovation, Innovation in terms of mutual funds in various asset
In terms of valuations, the GCC markets classes other than equities such as fixed
are at attractive levels, asset managers income and money market funds with the
agree. However, if investors are already growing awareness about the importance
invested in the markets, then it’s not of portfolio diversification among
necessary to get out of them immediately. investors.
If they however planning to put further
cash in markets, then they certainly should With increasing demand for
Sharia complaint products, the asset
Top 5 Equity Funds in KSA

1 Yr. Return (June 2014 - June 2015)

-4.5%

TADAWUL
Index

HSBC Saudi -0.3%

Companies Equity

0.8%

Riyad Equity Fund 2

5.9%

Samba-Al Raed Saudi Equity Fund 12.7% 1177

HSBC Saudi Freestyle Equity Fund

Source: Zawya, Marmore

November 2015 | www.wealth-monitor.com

PORTFOLIO | Asset Management

management companies in GCC countries
can be expected to offer more number of
Islamic funds to their customers, as they
are currently low except in Saudi Arabia,
according to Marmore, MENA Intelligence.

Further, the regulatory frameworks can
be expected to be strengthened and made
more investor friendly and in some countries
regulations may be liberalised to attract
foreign investors to invest in mutual funds,
it adds. However, according to the KPMG
investment management outlook, the
geopolitical tensions and political instability
in the region are challenges to the growth of
investor confidence and asset management
industry.

Going forward, the outlook of asset
management looks healthy in the UAE
which may witness an increase in the sizes
of funds offered as well as the number of
funds in the market, given the increasing
wealth flowing into the country, relatively
stable political environment, investor
friendly regulations, upgrading to emerging
markets status, and the knock on effects of
the opening of Saudi Arabian markets to
foreign investment.

‘Investor response has been very positive’

Bikram Sen Chief Executive officer Arthveda Fund Management, says five years
from now there will be several other reasons for the international economy to
interact with the GCC besides oil

In August this year, ArthVeda Fund getting mixed responses from the various What’s your outlook for the GCC region

Management had launched STAR Fund categories of investors. in the next 5 years? Is oil going to be

II for GCC investors. What prompted you Do you plan to launch any other product the biggest dampener for investor
to launch this product this time when especially targeting the NRIs or regional sentiment?
investor sentiment is somewhat muted? investors? We think that GCC will enhance its
Arthveda Fund Management has recently The strategies we plan to launch for the importance in scope in the world economy
launched its first overseas realty Fund, GCC investors include the ArthVeda Smart beyond its role as a supplier of oil. Already
targeting a corpus of $250 million. The Value US500 (AVUV) for large cap US Dubai has been a pioneer in the region
immediate impetus for this was the recent

changes in the Foreign Direct Investment exposure, ArthVeda Smart Alpha US50 showing how there is much more that can

(FDI) guidelines by the new government (AVUX) for All Cap US exposure, ArthVeda be contributed by the region to the world

in India that have now made it possible Smart Income US (AVUD) for a guaranteed beyond oil. Low oil prices will, of course,

to deploy offshore funds in the mid-sized, 5% distribution yield on NAV, ArthVeda’s create a drag in the near term. But no

middle income, housing projects. UK (AVBV) for UK exposure, ArthVeda’s energetic economy will remain complacent
Europe (AVEV) for Europe, ex-UK exposure in such a scenario and there are clear
How has been the response of regional and ArthVeda’s Japan (AVJV) for Japan indications that most governments in the
exposure. We would especially like to region are working on diversifying away
investors so far for the fund? highlight our GCC strategies, viz. ArthVeda from oil. So, 5 years from now there will be
Smart Alpha GCC and ArthVeda Smart several other reasons for the international
18 The initial progress was slow but we have Income GCC strategies which are for
now started getting soft commitments.

But in general, the response from all

the investors has been very positive growth and dividend respectively based on economy to interact with the GCC besides

regarding our investment strategy. We are the Investment Grade Equity from GCC. oil.

www.wealth-monitor.com | November 2015

PORTFOLIO | Asset Management

‘Strong case for Islamic asset management’

Dhiraj Rai, Director, Gulf & Eastern Mediterranean, Franklin Templeton Investments, says investors
should choose between different investment options, beyond just equities and Sukuk

Sukuks and equities constitute the the fastest-growing areas of the financial Dhiraj Rai, Director, Gulf & 1199
most preferred asset types for investors services sector with an estimated asset Eastern Mediterranean, Franklin
and asset managers in the region. Do value of over US$1.8 trillion as of April 2014 Templeton Investments
you believe investment managers and continues to grow at an annualized
need to diversify across different asset rate of nearly 20%. Since the 1990s, Islamic operational levels;
classes and not keep their portfolios finance has grown from a focus on Shariah- 2. Rational— Risk decisions should be
concentrated only on these two asset compliant commercial banking and project
classes? finance to encompass a range of products an intended and a rational part of each
Diversification is a fundamental long- and services that are now accessible by portfolio’s strategy; and
standing investment principle. It helps individual and institutional investors.
reduce risk because different investments 3. Rewarded— Every risk should have
rise and fall independent of each Rising demand for Shariah-compliant commensurate long term reward potential.
other. Since one cannot eliminate risk, investments from a growing number of
diversification helps in limiting the exposure Islamic banks and funds has led to the The decision to enter new markets,
to event and systemic risks. So at the development of Islamic asset management, particularly where many others fear to
time of taking an investment decision, catering to a global Muslim population that tread, carries considerable risks. We address
investors should choose between different numbers 1.6 billion, representing about these by considering risk at the step of the
investment options, beyond just equities 23% of the world’s population. The Middle investment process. We also support our
and Sukuk. After all, diversification across East, alongside Malaysia, is charting the way portfolios with independent portfolio risk
asset classes and currencies is important for forward in the development of the Islamic evaluation, led by Franklin Templeton’s
reducing the overall portfolio risk. asset management industry. global investment risk management
team, called the Performance Analysis and
This is why, as an asset management Recognizing this opportunity, at Franklin Investment Risk (PAIR) group.
company, we offer investors access to our Templeton we have combined the breadth
local investment management capabilities, and depth of our global asset management This group consists of over 90
which include regional equities, fixed capabilities with the expertise of focused experienced professionals spread globally
income & global Sukuk, through highly investment management teams. Each across the firm, who work consultatively
experienced and dedicated teams investment team operates independently, with the portfolio managers to provide
averaging 10 year’s industry experience. In staying true to its unique philosophy and an independent perspective on the
addition, our offering in the region is robust, approach. Bringing together this expertise absolute and relative risks and seek to align
giving investors added diversification with adherence to the financial principles of those risks with the portfolio managers’
benefits through access to a broad range of Islamic law, we are able to offer our clients investment research and convictions.
investment capabilities from a breadth of customized Shariah-compliant portfolios
investment management teams across the across a wide range of asset classes and
Franklin Templeton Group, via our SICAV strategies, specifically through global
offshore funds domiciled in Luxembourg equities, Asian growth and global Sukuk
which include global and regional fixed strategies.
income, equities, Shariah-compliant and
liquid alternative vehicles. Give us an idea of your risk management
strategy. How do you manage your fund’s
What are the key areas of opportunity do investments during volatile market
you believe are available to the Islamic conditions?
asset management industry in the The basic foundations of our integrated
region? approach to risk management apply across
At Franklin Templeton, we have been virtually all investment strategies. Central is
managing Islamic assets since 2008. We the idea that risk management is not about
believe that the case for Islamic asset avoiding risk entirely, but instead, seeking to
management in the region is a strong one. determine whether investment risks are:
Indeed, Islamic finance is globally one of
1. Recognized— Risks should be
understood at the security, portfolio and

November 2015 | www.wealth-monitor.com

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[email protected] | www.phillipwcwawp.witeaall.tahe-monitor.com | November 2015

MARKETS C SMOS

In this section, Wealth Monitor analyses news and data from the regional and international
financial markets with specific focus on precious metals, base metals, energy, agri/soft,
currencies and Arabian bourses

Energy

Precious Metals

Currencies

Arabian Bourses

Precious Metals P.22 Agri/Soft
Base Metals
Fallen Angel Rising
21
Base Metals P.24

The Prequel Before the Storm?

Energy P.26

Back into the Black

Agri/Soft P.28

The New Normal

Currencies P.30

The Agony or the Ecstasy?

Arabian Bourses P.32

Technical Analysis: TASI, ADI & DFM

DGCX Data P.34

At a Glance- October 2015

November 2015 | www.wealth-monitor.com

PRECIOUS METALS | Comeback

Fallen

Angel

Rising

As mentioned in our precious metal outlook
last month, gold prices have rebounded
sharply from its recent lows of $1115-1120
last month. Gold prices have breached the crucial

levels of $1150 on the upside and have tested

highs of $1195 before settling at $1160-70 levels.

The recent surge in gold prices can be attributed

to the continuous decline in US dollar index

on the back of dismal economic data. The US

non-farm employment payrolls data, unarguably

the most important indicator of the strength in

labor market declined steeply. This coupled with

dismal retail sales numbers resulted in investors

shunning the dollar and scurrying for gold.

On the demand side, the hard landing of

Gold prices have rebounded sharply economy in China has resulted in ample demand
from China as safe haven demand accelerates.

22 on weaker dollar and as US rate hike Chinese domestic equity markets have lost more

fears wane. But is it a false dawn, or than 30% this year. Technically, gold has moved
up quite a bit, rallying towards the $1200 has

the bullish trend will continue? taken a breather. Gold had given a symmetrical

www.wealth-monitor.com | November 2015

PRECIOUS METALS | Comeback

Precious Metals (Monthly Price)

(in $/ toz)

1166.9 Gold
988.99 Platinum
678.5 Palladium
15.94 Silver
1114.6
904.25
650.5
14.51
1134.1
1006.5
599
14.6
1095.4
981.5
609
14.77

Oct 26, 2015 Sep 30, 2015 Aug 31, 2015 July 31, 2015

Gold had given a $15-15.25 in the medium term as US trend line. The pair might consolidate near 23
symmetrical triangle interest rate hike takes centerstage. The $960-$980 levels in near term.
breakout on a weekly latest Commercial positions from the
chart. Gold prices are Commitment of Traders Report released Palladium: Sharp Run-up Unlikely
likely to consolidate by CFTC also point to an impending Palladium prices have made a stellar
around $1150 levels before correction. The silver net long positions recovery since early September, once
are at their highest levels since May, 2015 the Volkswagen scandal was brought
moving higher signaling an end of current rally. to notice. Palladium, which is a primary
catalyst in gasoline converters, gained as
triangle breakout on a weekly chart. Gold Platinum: Plateauing Out diesel vehicles remained out of demand
prices are likely to consolidate around On the platinum front, the prices have post the scandal. Automotive catalyst
$1150 levels before moving higher. rebounded strongly taking resistance at market is likely to touch $172.8bn
$1020-$1040 levels. The prices have risen by 2021, growing at a CAGR of 21%.
The Silver Lining sharply since last month, as traders and Although, palladium prices are likely to
Silver prices continue to trade robustly investors recover from the Volkswagen be bullish, it is unlikely to have a major
as commodities staged a remarkable emission scandal. Platinum prices have run-up as palladium prices remain less
rebound this month on the back of fall risen as jewellery demand zooms in US sensitive to the supply dynamics as most
in US dollar index. The prices have been ahead of the fourth quarter wedding of the platinum group metals mines are
supported nicely as demand seems to season. Platinum jewellery imports to US primarily platinum mines. Thus, a fall in
be picking up ahead even as supplies rose 233% (YoY) to total 4053 ounces. platinum prices is likely to result in a drop
dwindle. The major demand has been The platinum gold ratio which has been in supply. However, this is not true for
from the jewellery markets – especially trading below 1 has seen some recovery as palladium. Also as the price difference
from the branded and private-label silver a result of the uptick in demand. between palladium and platinum
jewelry. The US economy continues to diminishes, the substitution pressure on
be the fourth largest consumers in this Going forward, platinum prices are palladium reduces considerably. Thus, as
segment; and the recent spate of dips in likely to see some consolidation at higher price difference between palladium and
retail sales has not affected the demand levels. It is worth noting that platinum platinum reduces further, the demand for
for silver jewellery. The growth in demand jewellery is priced differently than gold platinum escalates. Thus, palladium prices
for jewellery items perceived to be high jewellery as it is more difficult to produce are unlikely to overtake platinum prices in
value has been the key reason for the platinum jewellery. Thus, prices for the medium term.
recent surge in prices. platinum jewellery remain less likely to
be affected by surge in dollars index. Technically, palladium prices have
Going forward, silver prices are likely to Although, the demand from automotive taken resistance exactly at the top to
take resistance near the long term trend industry remains weak, platinum prices top falling trend line and the 200 weeks
line placed at $16.50-16.70 levels. Silver are likely to be supported by strong US moving average which converge at $ 720.
prices are likely to consolidate around household demand. Palladium prices are likely to consolidate
near the levels of $630 - $650 in the near
Technically, platinum prices are likely term.
to take resistance at $ 1140-$1060 range,
which is the top to top weekly falling

By IFA GLOBAL DMCC, A Treasury Consulting Company based in India, UAE and Hong Kong
November 2015 | www.wealth-monitor.com

BASE METALS | Rebound

ThPerBeqeSufoteorlermth?e Metal prices crawl
back as a weaker
dollar and production
cuts improve sentiments.
But skepticism prevails
as the real recovery
is still far away. By
Nidhi Modi

As we head towards the end of the metals (especially from China) have led
year, the efforts by metal producers to a glut of raw materials everywhere.
to correct supply-demand imbalance Prices might need to fall further before the

has lent some support to prices and market changes direction”, metal industry’s

bringing some cheer to the metals sector. intelligence service provider MetalMiner

Helped by production cuts, prices took a said in its Annual Metal Outlook released in

positive turn after a gap of four months. October.

Strength was witnessed in base metals

such as aluminum, zinc and copper. The The Reverse China Effect

improved sentiments makes one wonder In the last four years, prices of all base

whether metals have bottomed. metals have corrected between 35 to 60%,

Doubts over a full blown recovery remain. with all of them at or close to their multi-

24 “As with commodities, industrial metals year lows. Base metals, most of which have
remain in a long-term downtrend and a large application in industrial sector are

we remain bearish on them until we see sensitive to economic activity. Fears of a

evidence suggesting the contrary. A strong slowing growth in China and apprehensions

dollar and weak global demand for base that the second biggest economy could

www.wealth-monitor.com | November 2015

BASE METALS | Rebound

Base Metals (Price forecast) Copper Aluminium Nickel Zinc

(in $/ tonne)

1,826 1,835.5 1,844 1,851.5

1,598.3 5,124.5 1,608.8 5,133.9 1,627.3 5,144.3 1,643.3 5,152

10,440 10,477 10,511 10,539.7

Q1, 2016Sources: IMF; MetalMiner; World BankQ2, 2016 Q3, 2016 Q4, 2016

further weaken have impacted metal Source: IMFobvious then that Chinese slowdown was belied this year as alternative supplies 25
prices to a large extent. China, which will have a bearing on the metal’s price. from Philippines made up for the shortfall
with its double-digit growth was a factor Price as such has dropped 20% this year in global supply demand. Consequently,
contributing to firming metal prices, now on demand concerns. While demand in nickel price has seen a sharper fall than
has an opposite impact on commodities. US, another major consumer, looks solid most other metals. Supplies are in ample
So, even as metal prices advanced on backed by strong auto and construction and weak demand is the real challenge.
announcement of copper production data, it falls short of making up for the US, where the economic activity outlook
cuts by Glencore, manufacturing outlook decline in import demand from China. appears encouraging, consumes only
in the largest metal consuming nation, Copper miners were driven to rethink one-fifth of what China does. China
China remained weak and dampened the business plans to tackle low prices. accounts for about 40% of the demand.
hopes of a sustained recovery in prices. Some will respond with a production While a rally in nickel price looks far
cut the way Glencore has done with away, miners are rethinking output.
Aluminium: Under Pressure suspension of production from two Mincor Resources and Poseidon Nickel,
Responding to production cuts in China, African copper mines. However, a factor both Australian miners have rethought
aluminium prices increased by 3% in that has prevented large excess capacity their output plans and look at reducing
September. The nation accounts for over from going offline is the reducing per production. The current fundamentals
half of global aluminium production and unit production cost helped by sustained don’t indicate a strong case for the metal’s
consumption. Faced with a surplus for decline in crude oil price. price rise until demand from China picks
many quarters now, Chinese producers up or more production is goes offline.
have aggressively exported the metal, China, which
contributing to the global supply-demand with its double- Zinc: Lacking Action
imbalance. Weakening prices are now Early October saw a reasonable degree
making exports unviable and shipments digit growth of rally in prices after Glencore, the
are declining sequentially while still up was a factor largest producer of zinc, announced
year-on-year. According to MetalMiner, contributing to plans to trim production by one-third.
a number of aluminium producers firming metal On October 9, the metal that finds
including Century, Alcoa and Rio Tinto prices, now has application in galvanized steel, saw its
have already cut production and migrated an opposite steepest intraday gain of 6.1% on the
to more efficient smelting production. But London Metal Exchange in almost a
we may see more pressure on aluminium impact on four year period. It is anticipated that
prices before it stages a comeback. commodities production cuts will balance the zinc
market this year and could also slide into
Copper: Bumpers Ahead Nickel: Weak Demand deficit next year. One of the concerns,
The metal, like copper reacted to some Anticipations of a price surge in the metal however, is that China is now producing
production cuts and saw some spike. following the export ban by Indonesia more zinc than it consumes, turning
But here too, the speed recovery could a net producer. Imports by the largest
hit some bumpers from China. With its consuming nation have also plummeted.
large manufacturing sector, China had It will be interesting to see zinc, which had
acted as a growth driver for copper prices outperformed the broader metal market
and demand. The nation accounts for in recent years, go back to some action
about 40% of the world demand. It was again.

November 2015 | www.wealth-monitor.com

ENERGY | On the Edge

Back

into the

Black?

Oil bulls emerge as inventories deplete, Since first week of October, the vital
consumption jumps and the supply technical indicators of the crude
drops. Is the recovery real or a dead oil have become positive, so now it
cat bounce? By Dharmesh Bhatia, would be risky to adopt short position in
Manager - Commodities Market, the crude oil market. At the annual ‘oil &
26 Emirates NBD Securities money’ conference held at London in the
month of October, the bigwigs of the oil
industry unanimously opined that let the
market was setting itself up for another
spike in prices with OPEC keeping the
taps wide open even as low prices see
investment in new production getting
slashed around the world.

Soon we may witness dramatic decline
of one million barrels per day in the
US production. Ban Van Beurden, the

www.wealth-monitor.com | November 2015

ENERGY | On the Edge

Crude Oil Monthly Prices Europe Brent Cushing, OK WTI day during the current year. It would
Spot Price FOB Spot Price FOB be an historical rate of demand growth
($ per Barrel) due to lower prices. With decline in the
US production, the market would start
120 108.63 104.94 balancing demand supply.
108.16 100.07 98.23
RECAP OF 2008 OIL FALL
100 84.17
97.55 80.53 It took only 6 months for the price of oil
to plummet from $120 to under $40 in
80 the second part of the 2014 and till then
the whole 2015 price is creating a base
63.9 Source: Thomson Reuters near $40. Meanwhile oil consumption
did not even decrease 30%, so what is
60 47.52 53.29 the real cause of this collapse you may
59.62 ask? Hedge funds. Let me explain. During
47.79 49.45 the first part of 2008, Western economies
47.11 46.28 were already slowing down noticeably
40 and hedge funds gradually pulled
Jan 31 Apr 30 Jul 31 Oct 31 Jan 30 Apr 30 Jul 31 Oct 05 trillions of dollars out of the market and
parked them in energy ETFs. At the time
2014 2015 Chindia’s insatiable thirst for oil and the
“decoupling” of east/west economies had
Bulls are feeling for jump in oil prices is the weakness of the many believe commodities were a “sure
high given the USD in the currency market. thing”, a sound enough tangible insurance
depletion in the to protect overinflated assets scavenged
inventories after Bulls are feeling high given the from made-up bubbles. On top of that, by
heavy surplus depletion in the inventories after heavy using leverage, profits were multiplied as
of two years, surplus of two years, tremendous oil went up, not a bad deal in a recession.
tremendous increase in consumption at lower But when the banking industry collapsed,
prices and tight supply in the market. hedge funds had to raise cash by
increase in In its monthly report, the US Energy “deleveraging”, liquidating their leveraged
consumption at Information Administration (EIA) stated energy ETF positions sending the price
lower prices and that the crude oil demand during 2016 of oil tumbling. Anecdotally shorting of
tight supply in would be fastest than the last six years. banking ETFs was suspended by the US
It indicates that the crude oil surplus Securities Commission during that time
the market would decline more rapidly than the but not shorting of energy prices, and
market expectation. Concurring with the the leverage mania soon found an escape
EIA, the industry group, the American route in utrashort oil ETFs, compounding
Petroleum Institute (API) says that during the speed of this downward spiral. By
last week, the US crude oil stock declined December 2008 the oil price had collapsed
by 1.2 million barrels and distillate stock 75% and frankly, who would complain
also fell. about the cheap gas these days as we
enter 2015 the oil landscape has reversed
CEO of the Royal Dutch shell even said Out of Narrow Range dramatically from a years ago. The price of 27
that since last one year we off-loaded oil in When the price of the global benchmark oil is lower than production costs and new
the market at very low prices. Now those Brent crude crashed to $50 from $115 exploration projects are being cancelled.
days are over. Even OPEC was running flat during June, 2014, several global oil China flush with cash is currently buying
out to compete for market share among companies suffered major losses due all the oil it can get its hands on to pump
its members and to take back customers to lower prices. The market has realized into its strategic reserves. Once arrogant
from more expensive producers such as US now that the US crude oil production OPEC countries are willing to sell oil at any
shale, Deepwater, and Canadian tar sands. is declining rapidly. Given the prices price to fund government programs and
witnessed in first week on October, we prevent political instability. One constant
Bulls on Street can say that the market has now come out however is the depletion of major oil
In short, the competition for attracting from narrow trading range. Even charts fields, worse than predicted at 9.1% year
clients is now over. Following “Price is at indicate that now big upheaval would be over year as we close 2015. It’s a matter of
the edge” message conveyed to the crude witnessed in the prices. Investors were when, not if, the economy recovers and
oil market from the London conference, awaiting for the EIA figures which will when it does, expect a strong bounce back
Brent crude rose by 2% and quoted at some momentum to the price. If it would in the price of oil.
$52.99 per barrel. On the same day, WTI confirm the API data then bulls would
rally by 5.6% and prices crossed $50, first tighten their grip on the market. According
time since September 3. The other cause to the estimates of the EIA, crude demand
would increase by 1.7 million barrels per

November 2015 | www.wealth-monitor.com

AGRI/SOFT | Respite

An upside in Apositive trend emerging in the estimates for global rice crop has been
agricultural agricultural commodity prices is that scaled down, mainly in Asia where El
commodity prices the price decline appears to have Nino caused delayed or deficit rainfall.
is expected in been arrested. One of the factors at play The phenomenon will also impact maize
the short term is the unfavourable weather conditions output in some top producing nations.
as unfavorable associated with the El Nino. Though The unfavourable weather is predicted to
weather caused prices are significantly down vis-a-vis last aggravate in coming months and could
by El Nino is likely year, there was no or marginal decline in impact crops down in last quarter of 2015.
to play up. By September on a sequential basis.
Nidhi Modi The FAO Food Price Index averaged
Globally, sugar has attracted attention 156.3 points in September 2015, up one
28 since September with a rally of 40% point from its sharply reduced August
due to lower production, again related value though still 18.9% less than a year
to El Nino. The world’s second largest ago. In the cereals space, a production
producer, India, is expected to produce decline is estimated in 2015 against
10% less sugar, contributing to the global last year’s record output. The Food and
deficit estimated at six million tonnes in Agricultural Organization (FAO) estimates
the season beginning October 2015. In the world cereal production in 2015 at
addition to sugar, hedge funds are also 2,534 million tonnes, almost a per cent
back to long positions in soy oil and wheat down from the 2014 levels. The decline
as prices show improvement. Coffee, is on the back of lower rice and coarse
which has seen price decline of over 30% cereals production.
this year, is seeing some strength from
weather uncertainties. Wheat: Supply Overhang
Wheat price in September was down 20%
The paddy season of 2015 has been compared to same month last year. In
affected by not so favourable climatic 2015, global wheat output is projected
conditions linked to El Nino. Output

www.wealth-monitor.com | November 2015

AGRI/SOFT | Respite

to touch a new record of 735 million Commodity
tonnes. This is nearly 2 million tonnes Price forecast
higher from 2014, due to higher crop
output in Australia, Ukraine, China and 6
US. At the same time, global trade in the
year ending June 2016 has been forecast 632.4
at 4% lower by the FAO. Global trade is Q3, 201 Q1, 2016
forecast at 150 million tonnes. FAO has 192.6 344.4
projected the world wheat inventories Source: IMF206.5
by the close of crop seasons in 2016 to 187.8
increase to their highest level in 13 years. 336.5
Adequate supplies of wheat continue to
push international prices sharply below 643.3 189.4
the levels of previous year.
190.2
Rice: Inventories to Drop 193.7
Paddy crops in a number of countries
were affected by unfavourable weather 346 638.5
setbacks but global rice prices have
declined almost every month since Q2, 2016
September 2014. This indicates a softening
global import demand impacting Wheat Rice Soybean Oil Beef (in cts/lb)
exporting nations. The global rice output
forecast has been trimmed to 493 million Wheat, rice and soyabean oil price in $/tonne
tonnes in 2015, implying a second
consecutive year of marginal of negative The Food and Agricultural Organization (FAO)
growth in most countries. The contraction estimates the world cereal production in 2015 at
in global trade during 2015 is therefore 2,534 million tonnes, almost a per cent down from
expected to be followed by an upturn in the 2014 levels
2016 that will support prices. Exporting
Sources: USDA, FAO, Ministry of Agriculture, India nations like Thailand and Vietnam could prices are therefore expected to remain Russia. Bulk of the increase is likely to 29
benefit. FAO projects the global rice low and may weaken further. Futures be driven by poultry sector, followed by
inventories to decline by 3.5 percent to price indicate a similar trend. In case of modest gains in bovine and ovine meat.
164 million tonnes in 2016, pushing the oils and fats, reduction in inventories FAO expects the global meat trade to
world rice stock-to-use ratio, an important may become necessary to meet global decline slightly in 2015, by 0.6%, to 30.5
indicator of food security, down from demand in the event of stalling global million tonnes. This would represent a
34.1% in 2015 to 32.3% in 2016. production. Oilseeds production, after marked slowdown from the 3% growth
three consecutive record harvests, may recorded last year.
Oilseeds: In a Rebalancing Mode see a reverse trend in 2015-16.
The oilseeds complex ended the Price of pulses such as tur dal and urad
marketing year 2014-15 (October- Meat: Stabilizing Prices dal have rallied in September and the
September) on a weak note in spite of Meat prices stabilised during the period trend continues, triggered by demand
improved fundamentals. In oilseeds between April-September after a decline. in the world’s largest producing and
and meals, prospects of record global The global meat production is estimated consuming nation, India. Factors such a
soybean availability and likelihood of to register a marginal growth of 1.1% in deficit rainfall and festive demand has
third consecutive surplus year for soy, 2015 to 318.8 million tonnes. Significant triggered prices upwards. Trade channels
weighed upon the prices of oil crops and increase is projected from the EU, US and have stocked up anticipating demand to
their meals. The expectation of increased go up and that has also fuelled prices.
feedgrain supplies aided the downward
pressure. At the same time, the global
import demand was subdued. Palm oil
output is projected to increase by close to
3% (1.7 million tonnes) and compensate
the decline in sunflower and cottonseed
oil.

Initial forecast for 2015-16 indicate an
improvement in world supply demand
balance in case of oilmeals and a
tightening balance in vegetable oils. Meal

November 2015 | www.wealth-monitor.com

CURRENCIES | Volatile Times

The AgtohneyEocrstasy?

Global central bankers have been on an
overdrive to revive their economies, which
are struggling with low inflation and weak
demand. While the central bankers have not shied

away from ultra-easy policies, they are also willing

to ease further. The ECB has been visibly upset

from Euro gains, which had spiked close to 1.15

handle against the US dollar, as stronger Euro will

lead to further deflationary pressure. Though,

Currency markets continue during the recent verbal intervention ECB official,
to witness bouts of volatility including President, Mario Draghi, maintained that
ahead of the looming US further easing is required to revive the inflation
Fed meet in December. What expectations but the real agenda was to keep the
if the Fed chose to go for a euro rally under check. Interestingly, the gains in
EUR/USD pair were majorly due to the weak US
economic data rather than recovery in European
economy.

rate hike? EUR/USD Crash

The European economic numbers continued to

paint dismal state of affairs as CPI inflation remained

30 in negative territory while German economic

sentiment fell to its one year low levels. The ECB

does understand that stronger Euro and recovery in

European economy does not co-exist in near term.

As stronger Euro will affect the export volumes,

which are already under pressure owing to weak

www.wealth-monitor.com | November 2015

CURRENCIES | Volatile Times

demand. The European Central Bank, has been under pressure to ease further, China. The Australian dollar recovered

which has been running quantitative refrained from further quantitative easing, nearly 300 pips against its US counter-part
easing programme of nearly €60bn per which is currently at 80 trillion Yen per from its last month’s levels.
month, has signaled a possibility of further year. The USD/JPY pair was seen tracking
easing. The EUR/USD pair crashed after movements of US dollar index as the The Reserve Bank of Australia, which
the comments as it fell more than 300 Japanese economic data failed to surprise has been in a tight spot amid weak
pips in just two sessions. Going forward, market participants. exports and low inflation, kept monetary
the EUR/USD pair is expected to trade policy stance unchanged. Though,
with weakening bias and any rally close to The Chinese economic data, which had Australian dollar remains a sell on
1.1350-1.1400 handle should be sold. sparked heavy sell-off in the emerging rally candidate, further depreciation is
markets, turned out to be less notorious expected to remain slow. A mild recovery
GBP/USD Recover last month. While Chinese GDP grew by in commodity prices including, metals,
On the other hand, Bank of England and 6.9% against the expectation of 6.8%, crude, resulted in recovery in emerging
Bank of Japan kept their monetary policy industrial production slowed to 5.7%, market currencies. The strong recovery
stance unchanged. While underlining close to six month low levels. People’s in emerging currencies was further
the deflationary risks, Bank of England Bank of China, which has a knack for supported by broad weakness in US dollar
retained confidence in economy. The continued intervention, has yet again cut and heavy intervention by their central
GBP/USD pair, which had tested the key interest rate by 25 bps to 4.35%. PBoC has bankers. During the first week of October,
also abandoned the deposit rate ceiling Indonesian Rupiah gained nearly 10%
against the US dollar and Malaysian ringgit
We, Research Team, at IFA Global, believe that the recovered close to 7%. Going forward, the
US Fed is unlikely to pull the trigger at least before emerging markets currencies will remain
sensitive to developments pertaining

December. The US dollar index, which had spiked to US interest rate hike and economic
to 97 levels, is expected to ease slightly going into recovery in China.

the FOMC meet A Close Call
Latest Google trend data showed that

levels of 1.5100, recovered sharply as UK’s in-line with the IMF requirements. The October Fed meeting coverage has
unemployment rate fell to 5.4%, last seen commodity currencies including New declined nearly 50% from meeting
in August 2008. The gains in GBP/USD pair Zealand dollars and Australian dollars, coverage in September. While interest
were further supported by steady increase took sigh of relief amid the slight recovery rate hike was a close call last month
in wage growth. Bank of Japan, which in commodities and further easing in with economists equally split over liftoff
decision, this month ‘Math’s’ is fairly

simple. The latest US economic numbers
remained weak with non-farm payroll

EUR-USD PARITY (YTD 2015) numbers clocking just 142K levels. The
US retail sales numbers rose by just 0.1%

Jan 30 against the expectation of 0.2%. The US
1.1286 Apr 30 Fed, which will meet during the week, is
Feb 27 Aug 31 Sep 30 expected to keep monetary policy stance
1.1222 June 30 unchanged. The US Fed Chairperson, Janet
1.1193 1.1211 1.1176 Yellen, who had underlined that she would

1.1135

like to see further improvement in labor
markets, might be slightly disappointed

May 29 July 31 Oct 26 with the recent numbers. We, Research

1.0987 1.0987 1.1031 Team, at IFA Global, believe that the US

Fed is unlikely to pull the trigger at least 31
before December. The US dollar index,

Mar 31 which had spiked to 97 levels, is expected
to ease slightly going into the FOMC meet.
1.073

By IFA GLOBAL DMCC, A Treasury Consulting Company based in India, UAE and Hong Kong

November 2015 | www.wealth-monitor.com

ARABIAN BOURSES | ATDASI ITTeecchhnnicicaal lAAnnaalylyssisis

Bearish Pressure RECOMMENDATIONS:
RECOMMENDATIONS:

Resumes Long term traders

The long term picture remains in a and wait for stronger technical Waiting for bullish reversal signs before
range with the market testing the indications before accumulating accumulating new long positions
area near the lower boundaries. new long positions. In the medium
The medium term has returned to term the market has returned to a Medium term traders
a Bearish mode after finding strong Bearish mode after a failure to break
resistance below the 4600 level. The above the 4600 resistance level. At Waiting for bullish reversal signs before
break below 4460 has cancelled current time only a break above 4600 accumulating new long positions
any immediate Bullish scenarios as would allow for new Long positions.
the market searches for a stronger Short term bearish patterns have Short term traders
support to contain the Bearish cancelled an immediate continuation
pressure. The short term has entered until reversal formations can signal Waiting for bullish reversal signs
a new Bearish phase after activating towards a strong support level to before accumulating new long
reversal formations below 4520 contain the downwards pressure. positions
postponing any Bullish scenarios Next important pivot level is outlined
until a retest of next pivot level at at 4380, although with technical SIGNIFICANT LEVELS:
4380. characteristics reaming weak, Bullish
scenarios are expected to remain on S1 4380 Projection Level Source: Tradepedia: Data as on October 27, 2015
“While primary trending hold for the near term future. “ S2 4100 Previous Low
characteristics remain weak, long
term traders should remain neutral R1 4600 Previous Top
R2 4700 Projection Level
. " 3.%$ .", *4 , *4 %$ (/ '/
/% . %%% %

%

)01 *R-resistance; *S-support

,023
INTRADAY PIVOT LEVELS:
,2314
)023 R1 4458 S1 4394
)2314 R2 4497 S2 4290
5& 626 R3 4522 S3 4122
R4 4562 S4 3862
*)6
*71 *R-resistance; *S-support
8! 9
)
*71 9

FUNDAMENTAL RATIOS:

PE: 10.0 | PVB: 2.0 | ROE: 14.0% | DY: 4.0
32

Any opinions, news, research, analysis, prices, or other information contained in these reports or any other material provided by Tradepedia LLC. is provided as general market commentary and does not
constitute investment advice or a solicitation to buy or sell. This info does not take into account your personal circumstances so please do not trade or invest based solely on this information.

www.wealth-monitor.com | November 2015

ARABIAN BOURSES | DFM Technical Analysis

Key Level At 3500 RECOMMENDATIONS:

The weekly chart continues to reflect continues to range between the levels Long term traders
a mixed picture with moving averages outlined at 3762-3240 where a break
flattening reflecting the range channel above the 3762 level will activate Waiting for bullish reversal signs
with recent lows within the 3200- a Daily trend reversal and shift the before accumulating new positions
3000 zone. The medium term while medium term bias to Bullish. However
still remaining Bearish, has formed while the market remains Bearish in Medium term traders
possible Bullish reversal patterns, the medium term, short term traders
where a rally to breach 3762 would should look for a reaction near the Buy above 3762
signal a medium term movement significant daily support of 3500. At
towards the 4000 resistance level. current time, any longer term Bullish Short term traders
In the short term the market has scenarios are expected to remain on
found strong resistance below 3750 hold. An immediate break below 3500 Waiting for bullish reversal signs before
causing a return inside the short term will cancel any Bullish scenarios and accumulating new positions
consolidation. threaten for a deeper correction to
retest the August low of 3240. “ SIGNIFICANT LEVELS:
“In the medium term the market

Source: Tradepedia: Data as on October 27, 2015 + .##" $#0+ %& + 1 "* ( 1 !*1 ( % # 2 # S1 3500 Retracement level
& 1
S2 3230 Previous Low
&
R1 3770 Retracement level
- 23 R2 4000 Previous Bottom


0245

04536

- 245 *R-resistance; *S-support

- 4536

7$ ,4,

.- , INTRADAY PIVOT LEVELS:

.83

9"% : R1 3573 S1 3527
- R2 3602 S2 3452
R3 3649 S3 3331
.83 8- R4 3694 S4 3150

FUNDAMENTAL RATIOS: *R-resistance; *S-support

PE: 11.0 | PVB: 2.0 | ROE: 14.0% | DY: 6.0

33

Any opinions, news, research, analysis, prices, or other information contained in these reports or any other material provided by Tradepedia LLC. is provided as general market commentary and does not
constitute investment advice or a solicitation to buy or sell. This info does not take into account your personal circumstances so please do not trade or invest based solely on this information.

November 2015 | www.wealth-monitor.com

ARABIAN BOURSES | TASI Technical Analysis

Retesting Lows RECOMMENDATIONS:

The long term outlook remains on hold in the near future and traders Long term traders
bearish with the market being should refrain from accumulating any
supported by the 6900 support level new long term position. Although Waiting for bullish trend reversal signs
that contained further downward the medium term remains strongly before accumulating new long positions
pressure in August 2015. The bearish, only a move above 7955
pullback from the August low has would shift the bias and indicate to Medium term traders
managed to find resistance below medium term growth in the Index.
8000, where a short term range has However at the critical price level, Waiting for bullish trend reversal signs
outlined boundaries of 7150 and a break below 7150 will continue before accumulating new long positions
7810. Following a heavy decline since the Bearish pressure and cancel any
the break below the 7700 short term immediate Bullish scenarios while Short term traders
level, the downwards correction has signaling a retest of the previous
shown early signs of finding support lows of 6900. Short term traders can Waiting for bullish trend reversal signs
above the 7200 level. continue to monitor activity above before accumulating new long positions
the 7200 support level for any Bullish
“The long term continues to remain reaction that could initiate a move
Bearish with the market reflecting towards the upper boundaries of
weak technical signals. While the 7800. “
rangy picture continues, long term
bullish scenarios are expected to be

SIGNIFICANT LEVELS:

(, /( (0 1$ 00 1$ 2% 3% S1 6900 Current Low Source: Tradepedia: Data as on October 27, 2015
/. % S2 6500 Projection level


R1 8000 Retracement level
*01 R2 8500 Previous Trough


203'

23' 14

*03'

*3' 14

5& 636

+*6 *R-resistance; *S-support

+ 71

8" 9 INTRADAY PIVOT LEVELS:
*

+71 7*

FUNDAMENTAL RATIOS: R1 7297 S1 7200
R2 7349
34 PE: 0.0 | PVB: 0.0 | ROE: 0.0% | DY: 0.0 S2 7076
R3 7434 S3 6854
R4 7518 S4 6502

*R-resistance; *S-support

Any opinions, news, research, analysis, prices, or other information contained in these reports or any other material provided by Tradepedia LLC. is provided as general market commentary and does not
constitute investment advice or a solicitation to buy or sell. This info does not take into account your personal circumstances so please do not trade or invest based solely on this information.

www.wealth-monitor.com | November 2015

Focus | DGCX

DUBAI GOLD & COMMODITIES EXCHANGE

AT A GLANCE- OCTOBER 2015

Volume Comparison 2014 v/s 2015

80,000 ADV 2015 ADV 2014 52,375 49,673 73,268 66,421 61,520 DGCX launched India
70,000 40,148 43,133 43,948 51,432 45,409 Silver Quanto and Mini
60,000 56,005 55,562 WTI Futures on October 9
50,000 50,309 48,734 45,869 49,096 45,830
40,000 46,272 20.8%
30,000 47,418 44,043
44,245 39,045 Gold & Rupee QuaNto

0 Jul Aug Sept Oct Nov Dec
Jan Feb Mar Apr May Jun

DGCX OI growth for 2015

Avg OI

Others
79.2%
Jan-15
49,355
Feb-15
53,197
Mar-15
59,688
Apr-15
45,590
May-15
35,069
Jun-15
54,764
Jul-15
78,391
Aug-15
91,797
Sep-15
160,858
Oct-15
107,054

All figures as on September 23, 2015
New Products Contribution In ADV

DGCX launched two new products on October 9 35
Strengthened its precious metals suite with the launch of India Silver Quanto Futures contract
Expanded its Hydro Carbon segment with Mini WTI contract

DGCX collaborates with Pakistan Mercantile Exchange Ltd. to develop a better understanding of Pakistan's derivatives markets
at a time when these markets are evolving rapidly and the economy is on a growth trajectory

November 2015 | www.wealth-monitor.com

In Focus | Noor Bank

‘We’re seeing an influx of
funds flowing back’

Renoy Kundukulam, Head of Priority Banking, Noor Bank, says wealthy clients in this part of the
world are increasingly looking to invest closer to their home

We’re doing a GIVE US A BRIEF ON WHAT’S YOUR Our relationship with our customers
feasibility study CUSTOMER VALUE PROPOSITION? extends beyond banking to providing
At Noor Bank, our Priority proposition lifestyle benefits like gym to golf
and exploring is based on three strategic pillars: A membership, valet parking at key
opportunities for strong Wealth Management Platform, locations, unique travel benefits and
setting up an asset preferential pricing & unique lifestyle exclusive retail offers tailored for our
management division. benefits for our clients. clients.
In the near future, we
expect this to go live We are very focused on our service HOW MUCH GROWTH THE PRIORITY
model and customer experience and BANKING SEGMENT HAS SEEN
very soon ensure the customer not only has IN TERMS OF AUM? HOW MUCH
a dedicated, certified RM but also a YOU AIM IT TO GROW IN THE NEXT
36 dedicated service officer while being COUPLE OF YEARS?
backed by a team of experts to help Between 2013 and 2014, we’ve grown
manage his or her portfolio. 100% in terms of the total assets that
we manage. We should be closing
Apart from reduced rates, our Priority 2015 with a similar 100% growth over
clients are also offered preferential the previous year. We are hopeful to
terms on products such as Home grow at a steady pace of 30-35% on an
Finance, Auto Finance, Credit Card and annual basis over the next three years
higher withdrawal limits with their
Priority debit card.

www.wealth-monitor.com | November 2015

In Focus | Noor Bank

despite the current phase of subdued intermediaries, such as brokerage firms, to investment professionals and RMs
investor sentiment. If the team that offer such products and services. to advise clients on several regional
manages HNWI clients is any yardstick to investment opportunities. Additionally,
go by, then we rank among the top 10 WHAT INVESTMENT ADVICE DO YOU wealthy clients in this part of the world
banks in the UAE, in terms of the team size OFFER TO YOUR CLIENTS NOW? are increasingly looking to invest closer to
that manage these clients in the Priority We strongly believe in taking a well- their home than in unknown destinations
banking space. diversified approach to investing. This worldwide because of the global financial
would include sticking to the strategic uncertainties. This trend reversal has
One of our key strengths lies in being asset-allocation model based on each reaffirmed Dubai’s place as the regional
a new player in the priority banking client’s profile. However, from time to financial hub serving the entire MENA
segment. This also enables us to leverage time, there will be required a Tactical region, and putting before us more
our core capabilities and gain market change to the portfolios. For instance, opportunities to leverage our upcoming
share through implementing new with the Quantitative Easing in Europe, we asset management vertical in this part of
strategies. With our emphasis on high see some opportunities in the European the world.
service standards, the strategy of having equities at this point of time. This could
a team backing the Relationship Manager be an interesting tactical play. Analysts 37
in meeting the clients’ needs has fallen in are expecting the U.S. Fed to increase
place. rates in the short term (early 2016). This
could have an immediate impact on sukuk
ARE YOU LOOKING TO PUT IN PLACE A prices, which could give our clients an
STANDALONE ASSET MANAGEMENT opportunity to get into the fixed income
VERTICAL TO STREAMLINE YOUR space at lower prices. Commodities, as an
BUSINESS? asset class has seen a steep fall over the
We’re not just looking at catering to last few years. It could stay low for a while
clients based in the UAE or the region or it could be a matter of time before
alone. We’re rather gearing to serve a trends are reversed - which in turn could
wider client base in order to be the one- open up investment opportunities. For
stop shop for providing a 360-degree most portfolios we recommend exposure
wealth management and investment to developed markets such as US and
advisory services. Right now we’re Japanese equities to give stability to the
doing a feasibility study and exploring portfolio.
opportunities for setting up an asset
management division. In the near future, WHY HAVE WEALTH MANAGERS IN
we expect this to go live very soon - by THIS REGION NOT BEEN ABLE TO
the first half of next year we’ll be making a PLOUGH THEIR CLIENTS’ OVERSEAS
positive move regarding this. INVESTMENT BACK INTO THIS
REGION?
WHAT DIFFERENCE IT WOULD BRING I believe it’s the other way round.
TO YOUR BUSINESS? Sovereign Wealth Funds (SWFs)
Our current mix of investment solutions which comprise 70% of the GCC
range from trust services, structured region’s investable assets have
deposits, mutual funds, sukuk (regional been investing in diverse assets
and global), insurance products through across different markets around
bancassurance channel, physical gold, the world. For the rest 30%
and Dual Currency Murabaha products. of investable wealth which is
We’re however looking to develop and largely driven by high net worth
channelise our core competencies individuals, we’re seeing an
whereby we can expand our offshore influx of funds flowing back
investment solutions by including into the region. This is in sharp
other asset classes, such as real estate contrast to the trend we’ve
investment products, ETFs, etc. and been seeing in the past.
introducing new services such as
launching our stock trading platform One of the reasons
by next year. We’re therefore looking to behind the trend reversal
partner with local as well global financial is the abundance of skilled

November 2015 | www.wealth-monitor.com

TAKING STOCK | Offshore Funds

HTuhne t

for Yield

Offshore funds allow
greater freedom of choice,
diversification of investment,
asset protection, and, of
course, the tax advantage.
For the residents in the
GCC, expats or locals,
these funds could be a
viable investment solution

38

www.wealth-monitor.com | November 2015

TAKING STOCK | Offshore Funds

Offshore funds are widely perceived for retail investors looking to invest a small include the Bahamas, Bermuda, 3399
as a safe tax friendly investment amount the choice here is slim. High net Cayman Islands and Isle of Man that are
avenue for those looking to worth individuals (HNIs) can access to known to offer fairly secure investment
diversify outside the home country. By plenty of offshore funds because such opportunities. Globally, other top premier
definition, an offshore fund is a mutual funds have high minimum investments as locations for offshore funds are Uruguay
fund which invests the assets outside a well as high fees. and Panama (both in Latin America),
home country. Investors gain access to Delaware (US), Ireland, Luxembourg,
overseas markets and stock exchanges by Every country has an industrial Switzerland, Netherlands and Cyprus
virtue of investing in such funds. These advantage or disadvantage in a specific (in Europe), Hong Kong, Singapore and
funds are structured to offer subscribers sector. For instance, Korea enjoys a Macau (in Asia), Mauritius and Seychelles
the potential economic advantage that leadership in the electronic goods sector. (in Africa) and the UAE (particularly Dubai)
may exist in an international market. India enjoys advantage in services sector in Middle East. More than half of the
such as IT. Russia and Brazil have rich world’s assets and investments are held
Low tax havens are investor friendly, mineral and mining based economies. in offshore jurisdictions and many well-
offer secure investments and do not need Germany is the global hub for automobile recognised companies have investment
to follow the laws of securities exchange and engineering industry. opportunities in offshore locales.
that are applicable to the investor’s home
country. Tax neutrality emerges as one of It is critical for an But like most investment avenues, the
the key attractions of an offshore fund. The investor in offshore offshore funds are not devoid of risks. One
host nations of these funds also benefit needs to be prepared to face an impact
to a large extent. By virtue of offering a funds to do some arising out of changes and volatility in
favourable corporate environment, these homework and capital markets, currency exchange rates,
countries can attract sizeable international basic research interest rates, laws related to taxation and
wealth. about the political other government policies and regulations
and economic as well as political developments. Among
Why Invest Offshore? atmosphere of the these, currency holds the biggest risk. An
Offshore funds can provide an geographies where adverse movement of the currency vis-a-
investor with sector as well as country the fund house vis the investor’s home current can trim
diversification. One who invests in an seeks to invest the gains significantly.
offshore fund gets a direct access the
global businesses and brands that are The Caveats Offshore funds are sector specific
driven by global factors of trade. It is It is critical for an investor in offshore as well as country specific. Some are
advisable to invest with a long-term funds to do some homework and basic a hybrid- sector specific and nation
horizon in offshore funds to get adequate research about the political and economic specific. But they could hold high risks.
advantage that is in excess of what a atmosphere of the geographies where For example, a fund may invest in global
domestic mutual fund can offer. An added the fund house seeks to invest. Funds energy stocks and there could be a fund
advantage of offshore fund is that is it which have a broader exposure to focussed on equities in Canada. There may
usually set up in nations with minimal emerging markets or other international be a fun investing only in Canadian energy
invest regulations. This aspect reduces the opportunities carry a lower risk compared companies.
cost of managing such a fund. An investor to country-specific exposure. Investors
also needs to factor in the tax that could need to make their bets accordingly. It is One can start investing in an offshore
be applicable to his returns in the home highly recommended that one carefully fund by initially allocating only a
country. Some countries do tax capital reads the fund prospectus before deciding small portion of funds. Depending on
gains coming from offshore funds at a on which fund to invest. the experience, this can be gradually
higher income tax rate. scaled up. An investor must select such
The popular offshore destinations funds that are well known and enjoy a
An investor in offshore fund can also reputation of fiscal strength and observe
be an expat who wishes to put his money high compliance to all laws of the land.
in the same funds but cannot hold an Foreign countries that offer lenient tax
account in the home country by virtue of regime and investment regulations may
being a non-resident. At the same time, offer an advantage but investors need to
be cautious before taking a decision.

November 2015 | www.wealth-monitor.com

BLUE CHIP | Cat Bonds

The

Alternative

Story

Cat bonds could be a valuable addition to a diversified alternative assets portfolio,
serving as a complement to the conventional one. But they don’t come without risks

Catastrophe bonds, popularly termed conditions and offer significant attractions quarter of the year. It is expected the total
cat bonds, are a standardized way to investors. For example, for the same level issuance by year-end will be at least $7
of transferring risks of insurance to of risk, investors can usually obtain a higher billion for publicly offered cat bonds, it said

the capital markets. Insurers or reinsurance yield with cat bonds, vis-a-vis alternative on its website in September.

companies issue bonds to investors to investments, notes Investopedia. “Catastrophe bonds remain a useful

cover likely claims from pre-specified risks Another benefit is that the insurance diversifying risk tool for investors’

such as earthquakes, hurricanes, tornadoes, risk securitisation of cat bonds shows no portfolios and a valuable risk transfer tool

etc, within a particular time period. The correlation with traditional assets such as for sponsoring insurance companies. As

proceeds are invested in largely risk-free equities or corporate bonds, meaning they interest rates remain near historic lows

assets to generate returns, which are used provide a good diversification of risks. investors continue to look for yield in

to generate income for the bond holders. alternative assets classes”, NAIC said. Some

Investors in these bonds take on the risks of NOT RISK-FREE of the large cat bonds issued in last one

a calamity in lieu of attractive returns. They These bonds, like any return generating year is $500 million Tradewynd Re Ltd

also get back the principal at the end of the asset, are not devoid of risks. The foremost (backed by AIG), $290 million Kizuna Re II

tenure. In the event of a catastrophe, the risk is the degree of probability of a Ltd (backed by Tokio Marine and Nichido

investors can lose part or whole of principal catastrophe which can wipe out the returns Fire Insurance), and $300 million Compass

and the rate of return are reduced or turns as well the principal. Investors must also Re II Ltd (backed by AIG). Most of these

zero. ensure that his money is being invested bonds relate to markets like US, Canada,

to generate risk-free returns. Also, the cost Japan and some European nations.

NON-CORRELATION of issuance of cat bonds is higher and In June 2014, the World Bank issued

Cat bond has attracted investor interest as therefore these are not viable for small its first catastrophe bond linked to risk of

it is one of the few asset classes that are not principal amounts. The number of buyers natural hazards in 16 Caribbean countries.

linked to the financial markets. First issued for cat bonds is also limited due to absence The 3-year $30 million bond is linked

during the 1990s in the wake of Hurricane of familiarity with such risks. to earthquake and tropical cyclone risk

Andrew and Northridge Earthquake in While the past performance of cat in these countries. The World Bank first

the US, these bonds have shown a robust bonds cannot be regarded an indicator became active in the cat bond market in

growth. of its performance going forward, these 2009 when it established the MultiCat

Investors who look for an alternative bonds compare favourably with traditional Program that allows countries to access

avenue to equities and usually end up investment forms. Like traditional assets, the cat bond market through a common

investing in infrastructure or land will these bonds can also be traded in the documentation platform. The MultiCat

find these bonds as a suitable alternative secondary market. Program, under which the World Bank acts

strategy. In an environment of low interest According to the National Association of as arranger but not issuer of the bonds, was

rates and returns being impacted by Insurance Commissioners (NAIC), the US used by the Government of Mexico in 2009

inflation, these bonds can be a good bet. standard setting and regulatory support and again in 2012 for highly successful

Investors can face losses by investing in cat organisation, around $5 billion worth of transactions that transferred earthquake

40 bonds, but the chances can be reduced if new cat bonds were issued in the first half and hurricane risk to the market, says a
investment is diversified across different of 2015. The issuance activity is expected statement on the Bank’s web site.

catastrophe bonds. The advantages of to remain strong in the second half of Going forward, with changing climatic

these bonds are that they are not closely the year, with the majority of cat bonds conditions, insurers are expected to

linked with the stock market or economic expected to be marketed during the fourth increase the issuance of cat bonds.

www.wealth-monitor.com | November 2015

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MARKETS REWIND | Capital Markets

Capital Fix

What was started, just a couple of centuries ago, as the lifeline for businesses looking for funds,
capital markets have started hitting roadblocks in recent years with many companies shunning the
IPO option. Is the quest over?

“Wall Street people learn nothing and Much of the 1792, leading merchants of New York 4433
forget everything.” turnaround had a meeting to evaluate options to
Whichever way you slice and dice these however in organise the securities business and two
timeless words of Benjamin Graham, there primary markets months later they signed the Buttonwood
is one overarching theme -- not everyone hinges on the Agreement. The buttonwood tree on
is entrepreneurial. Capital markets that health of global Wall Street was their meeting place. The
began to take shape when countries economies agreement sought to restrict trading only
around the world began trading among among members and fix trading fees. With
themselves is a case in point. got a boost like never before. growth of the American economy, the
With surge in volumes of such shares, NYSE also rose to prominence, becoming
That time, merchants needed huge the world’s most important stock
capital to set up large businesses but it a need for well-established marketplace exchange.
was not possible for a single merchant was felt. Stock traders came together at
to raise adequate amount of money. a London coffeehouse and this became Gradually, the idea of stock exchange
So, groups of merchants pooled their the place for trade of shares. As trading gained prominence and today most
money to start businesses where every gathered momentum, the traders nations have one or more exchanges,
partner held shares. This was the origin of acquired the coffeehouse and renamed generating the capital. The financial
joint stock companies. Many struggling it as the stock exchange in 1773. This was crisis of 2007-08 and the collapse of
businesses got a new lease of life through how the first stock exchange — London Lehman Brothers however demonstrated
this. In early 17th century, the Dutch East Stock Exchange — came into being. the resilience and robustness of many
India Company issued the first ever paper exchanges, which remained vital sources
shares. The shares allowed its holders The idea travelled to American of market liquidity and funding for the real
to easily buy and sell stocks with other colonies and in 1790 Philadelphia saw economy as the inter-bank market and
members and investors. birth of oldest exchange in US. However, bank lending to businesses collapsed.
Philadelphia Stock Exchange was
It didn’t take long for this concept overshadowed by the New York Stock The current global financial
to gain popularity in leading maritime Exchange (NYSE) that came into being uncertainties and subdued investor
trading nations like France, Spain and in 1792. NYSE started as a market place sentiment has dried up the IPO (initial
Portugal. It also gained ground in England. on the corner of Wall Street. In March public offering) pipeline in many capital
The ease of raising capital helped more markets around the world. Much of the
businesses to grow. Availability of startup turnaround however in primary markets
capital helped many companies to set hinges on the health of global economies,
business during the Industrial Revolution primarily the US and emerging markets
in England around 1760. Manufacturing that could get the market sailing again.

November 2015 | www.wealth-monitor.com

WHAT’S HOT

Boomerang Effect

Investors seem to be tiptoeing back into major and emerging
markets equities. But is it really a recovery?

After crawling Given concerns over global growth GOLD SHINES
along the investors keep pushing back Gold rallied to a four-month high, and is
bottom during expectations for the US Federal therefore pointing higher for the near-term.
September, Reserve’s first interest rate hike since If expectations for central bank easing
October saw June 2006, which was more than nine continues there is a possibility of it reaching
the Shanghai years ago. It’s now looking like a rate hike around $1,216 before the rally is done. At
Composite rise probably won’t occur until sometime the same time, it faces headwinds from a
to a 2-month high next year. Meanwhile, the PBOC cut rates strengthening US dollar. The dollar hit a
another 0.25%, and Mario Draghi signaled two-month high last month, but remains
44 that the ECB may need to do more to contained within a seven-month range,
stimulate Europe, leading investors to where it may stay for a little while longer,
believe that central banks in general providing enough time for gold to reach
will continue their easy money policies, higher levels. However, at some point
at least for the time being. That along the dollar is looking like it will continue a
with better than expected earnings from strong uptrend that began in 2014, when
market leaders, Microsoft, Alphabet oil topped, likely again putting downward
(Google’s parent company) helped propel pressure on gold, as well as other
the recovery in global equity markets last commodities.
month.
CHINA GETS SOME RELIEF
EQUITIES COMEBACK Concerns about a slowdown in the China
Most equity markets strengthened economy continue, but for now investors in
following the rout in August, with the China stocks are breathing a sigh of relief.
MSCI Emerging Markets Index reaching a After crawling along the bottom during
two-month high, along with most other September, October saw the Shanghai
major indices in the US, Europe and Asia. Composite rise to a two month high. This is
Even Malaysia and Brazil, two of the a positive for not only China, but for EMs in
hardest hit EMs, saw gains. Further upside general, given the impact China has on the
looks likely for stocks in the short-term. global economy. The stock market bubble
However, investors will be proceeding in China started to pop back in June, and
with caution as the rally so far seems eventually led to a greater than 40% decline
to be a reaction to the steep August in about two months. This created havoc
declines, and helped by shorts covering for many investors as they saw savings
their positions. Markets are heading up evaporate. There’s a good chance that
into a range of potential resistance in the Shanghai Composite will continue to
many cases, which could put an end to strengthen in the near-term, as it’s still in
the recovery. At the same time, if they the early stages of coming off the bottom.
keep going, a breakout into new highs for Any bullish sentiment seen in China will
2015 by a major index would be bullish likely support a positive outlook in other
for other markets as well. EMs, especially in Asia.

By Bruce Powers, CMT, Chief Market Analyst at MarketsToday.net, and President at WideVision

www.wealth-monitor.com | November 2015

WHAT’S NOT

The Return Games

The weak performance of hedge funds raises questions
about their ability to generate returns in uncertain times

HEDGE FUNDS GET SOCKED GROWTH CONCERNS AT CENTER STAGE According to
Volatility in global markets is taking its At the annual meeting of the IMF and Bloomberg,
toll on hedge funds, which are supposed WBG held in Peru last month, one of the hedge funds
to be able to weather higher risk market biggest concerns was the movement of
environments. According to a study by investment away from EM stocks and with more than
Bloomberg, hedge funds with a total of bonds as investors seek safer havens. $16 bn under
more than $16 billion under management The IIF reported recently that they management
have announced closings this year. October expect to see net outflows from EMs of
saw a slew of closing announcements approximately $800 billion for both 2015 have announced
from big names like Fortress Investment and 2016, the largest since the late 1980s, closings this year
Group’s $2.3 billion global macro fund, when recordkeeping began.
Bain Capital’s macro Absolute Return 45
Capital fund ($2.2 billion at August), and Compounding outflows is the
long time performance leader Renaissance contribution by China, the world’s second
Technologies announced it is closing its largest economy. It saw capital outflows
$1.3 billion Institutional Futures Fund. exceeding $500 billion in the first eight
Further, big name managers like John months of the year, according to a report
Paulson, David Einhorn and Bill Ackman are by the US Treasury. Outflows accelerated
looking at double digit losses for 2015 as of following China’s devaluation of the yuan
October. in early-August. During the first half of
2015 outflows were approximately $250
Of course, bad performance plays billion, compared to $26 billion the same
a part in the decision to close a fund, period in 2014, an 860% increase. China
as well as the amount of redemption reported last month that its economy
requests, plus difficulty in raising new grew by 6.9% in the third quarter, its
capital. Most hedge funds get paid using lowest growth rate since the global
the standard model of a 2% or lower financial crisis.
management fee, plus a performance
fee of 20% of profits. From a business This is likely to maintain downward
perspective, when performance goes pressure on the yuan with further
too far negative, then the time it might weakening putting additional stress on
take to bring the fund back to positive, EM economies. That coupled with lower
and again generate a fee, changes the oil and commodity prices in general, along
business equation to such a degree that with strengthening in the dollar adds to
it is more cost effective to close the fund. existing concerns over further slowing of
This is likely to fuel the debate over the the global economy.
cost of hedge funds to investors as the
industry has been pressured to lower However, in the near-term, since falling
fees since the global financial crisis, given rapidly in August the Chinese yuan has
their general under performance during a been strengthening. It is likely to continue
period of very high volatility. that path for the next one or two months
given the overall trend.

By Bruce Powers, CMT, Chief Market Analyst at MarketsToday.net, and President at WideVision

November 2015 | www.wealth-monitor.com

MASTERING THE MARKETS | SICAVS Vs OEICS

OEICS and SICAVS are collective investment scheme structures that look very similar, but there
46 are obviously some differences

www.wealth-monitor.com | November 2015

MASTERING THE MARKETS | SICAVS Vs OEICS

Investors increasingly look to While SICAV up umbrella companies having a number
invest overseas as a means to structure is of sub-funds or as a stand-alone fund.
diversify risks and hedge against Luxembourg- Also, the tax difference between SICAV
elements such as volatility, inflation domiciled, and OEICS structure is similar as a handful
and home currency depreciation. OEICS are of OIEC funds pay taxes.
Selecting a suitable foreign or mostly UK-
offshore fund however is not simple. domiciled INVESTMENT TRUSTS
It is critical to understand the fund Investment Trusts are another type of
structure before taking a decision. based Commission de Surveillance du fund structure, but unlike OEICS they are
Many of the overseas retail funds Secteur Financier. It is not necessary closed. This means only a fixed number
offered are established on SICAV for a SICAV to have its own investment of shares are issued, which gets publicly
or OEICS fund structures subject to and administration staff other than traded on the platform of London Stock
legal structure and regulations. a board of directors. In other words, Exchange. However, like OEIC they are
SICAV can be overseen by another based out of UK. These trusts can borrow
SICAV management company. The interests money and expand exposure to stock
Let’s start with SICAV, which of the investors are safeguarded by markets with the idea of increasing
is expanded as société a Luxembourg based custodian who returns. Of course, this exposes the
d’investissement à capital holds custody of the fund assets. investment to a downside risk as well.
variable. In French, it stands for SICAV does not attract a tax. These trusts have an independent board
an investment company with to represent the interests of shareholders
variable capital or an open-ended OEICS like any other listed company.
investment company. SICAVS While SICAV structure is Luxembourg-
are usually registered in French domiciled, Open Ended Investment Did You know??
speaking nations such as France and Companies (OEICS) are mostly
Luxembourg. It is a company with a UK-domiciled and are regulated by • Both OEICS and SICAV
mandate to invest in shares of other UK’s Financial Conduct Authority. It can be established as an
companies and it can generate was introduced in the UK in 1997 as umbrella company with a
or revoke new shares as per the a flexible investment vehicle to unit number of sub-funds, or
investor demand, that is, variable trusts. As the name suggests, like as a stand-alone fund
capital. SICAV, OEICS are also open-ended
investment companies that allow • While OEICS is regulated
Investopedia defines SICAV as a an investor to pool his money with by UK’s Financial
type of open-ended investment fund other investors enabling him to invest Conduct Authority, SICAV
in which the amount of capital in the in stock and bond markets in a cost is by Commission de
fund varies according to the number effective manner. Every time a new Surveillance du Secteur
of investors. Shares in the fund are investor enters the fund, new shares Financier in Luxembourg
bought and sold based on the fund’s get issued and therefore this is called
current net asset value. SICAV funds open ended. But the share price is • Income on OEICS funds
are some of the most common not affected. It makes investments
investment vehicles in Europe. They on behalf of shareholders who share is subject to tax while
offer a wider sphere of investment the profit or loss arising from it. Here no tax is levied on SICAV
as an investor can combine his the income is subject to corporation funds
contribution with that of others tax of UK. It offers money managers
without feeling the need for a bigger a greater flexibility and therefore 47
portfolio to diversify. It is highly liquid managers seek to shift existing
and can be redeemed in part or full at portfolio to OIECS. OEICS is commonly
any point of time. This fund structure prevalent in UK and also gets used in
can accommodate different asset Western Europe and other regions.
types such as traditional as well as Like SICAV, OEICS can also be set up
alternative investment products. With as an umbrella company holding
only a few restrictions on leveraging, number of sub funds as well as a
these are ideal for hedge funds, standalone fund. SICAV and OEICS
private equity and property funds. are very similar for most practical
purposes. Both offer an ability to set
Introduced in early twentieth
century, SICAVS are popular in
Western Europe and some other
regions. A SICAV can be set up as an
umbrella company holding number
of sub funds as well as a standalone
fund. It is regulated by Luxembourg

November 2015 | www.wealth-monitor.com

TECHNOLOGY TRENDZ | Predictive Analytics

What
Lies
Ahead

Here’s how predictive analytics can help financial
services firms, including asset management, take
48 informed business decisions and reduce uncertainties
by predicting possible market trends and outcomes

www.wealth-monitor.com | November 2015