Tuesday, March 22, 2011

ME funds set to revisit investment strategies

DUBAI — Governments in the Middle East are expected to invest more funds in developing infrastructure while the region’s sovereign wealth funds might redirect capital flow to investments within national and regional borders in the wake of the regional unrest, bankers and financial experts said.

Investment bankers across the region also expect to see lower than predicted merger and acquisition activities in the backdrop of the escalating unrest.

The previous estimate of an increase of 20 per cent in M&A activity during 2011 no longer remains realistic, say investment bankers, who now describe 2011 as “a year of anticipation.”

According to previous estimates, the value of M&A activity in the region was expected to rise to between $28 billion and $30 billion in 2011. Revised M&A activity levels will now remain “flat to down” compared to 2010, they said.

However, bankers expect to see increased government investments directed towards domestic economies in sectors such as infrastructure, healthcare and education as a result of the dramatic events currently taking place across the Middle East, according to a report prepared by financial PR advisors M: Communications and business information provider Zawya.

“This is regarded as a strategic move by regional governments in order to more effectively manage the expectations of national populations. Similarly, Sovereign Wealth Funds are expected to revisit their investment strategies and redirect capital flow to investments within national and regional borders,” the report based on interviews with 12 of the region’s leading investment bankers reveal. “Assets under management of sovereign wealth funds increased from $3.59 trillion in 2010 to $3.98 trillion at the start of 2011,” said a report by research firm Preqin. The Middle East SWFs account for a major share of this. The unrest in the Middle East and North Africa could hit the sovereign wealth funds of Algeria and Bahrain, the report said.

“Besides, the Libyan Investment Authority, which manages about $70 billion sovereign wealth funds, could also see its mandate altered following any political change in the country,” it said. “Collectively, the Mena-based sovereign wealth funds in question have hundreds of billions of dollars in assets and changes in their investment policies would be widely felt,” said the report.

About 61 per cent of sovereign wealth funds across the globe invested in infrastructure at the beginning of 2011, up from 47 per cent last year. “Besides, sovereign wealth funds also witnessed an increase in investments in real estate and private equity,” Preqin’s 
report said.

The report by PR advisors M: Communications and business information provider Zawya also reveal that economic activity in the Middle East in 2011 will be highly disrupted. “A potential pick up in the latter half of the 2011 will be almost wholly dependent on the outcomes of the political upheavals across the region with some bankers feeling gloomy about regional M&A prospects for 2012 as well,” it said.

Despite the fact that Egypt has seen some of the most dramatic political events, bankers still believe that the Egyptian economy has the potential to see very high levels of economic activity once the situation stabilises. Other findings also reveal that Financial Services is the sector most likely to suffer, mainly due to loss of credibility and confidence.

In 2010, the Middle East witnessed a series of M&A activity with more than 500 deals announced in the region, the most on record, according to Thomson Reuters 2010 Middle East Investment Banking Analysis. Middle Eastern M&A, based on target nation, reached $31 billion in 2010, more than double the activity seen during 2009. Telecommunications was the most targeted industry in the Middle East with $13.2billion, while Kuwait was the most active Middle Eastern country accounting for 46 per cent of annual activity.

Source: www.khaleejtimes.com

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