KAMCO on the MENA region’s ‘increasing opportunities’ for investors

Transcript

The asset management sector in the MENA region, though relatively unexplored, is growing from strength to strength, with a wealth of investment opportunities. One institution that has capitalised on the industry’s boom is KAMCO. World Finance speaks to its Chief Executive Officer Faisal Sarkhou to find out more.

World Finance: Well Faisal, potential growth in the MENA investment banking industry is seen to be promising, with deal activities gaining momentum. So where would you say are the investment opportunities, and what is the size of the market?

Faisal Sarkhou: Last year was truly a good year. The financial crisis had hit a lot of companies in the region and a lot of business activity slowed down on the investment banking side. We saw a turnaround that resulted in 2013 being the largest in terms of deal value in the past five years, at around $73bn.

This year started well in the first quarter but slowed down again in the second quarter. We are expecting the second half of the year to be strong as well. In 2013 we saw some of the highest performing markets in the world and the region, in particular in the gulf and the GCC countries, that has resulted in an increased flow of foreign direct investment from all over the world.

In 2013 we saw some of the highest performing markets in the world and the region

This has made it more attractive as well for local investors, and has regained their confidence back into the markets. So opportunities are increasing.

On the investment banking side, we haven’t seen too many IPOs in the past period. There is a lot of talk of new IPOs in the UAE, and Saudi Arabia, and there is some talk in Kuwait, but we expect that once that begins to flow, sentiment will also gather momentum.

World Finance: The MENA region has seen its fair share of turbulence – how safe of a place would you say it is to invest?

Faisal Sarkhou: The region has had its turbulence for many years so we are used to having some kind of turbulence in different pockets of the region. However, GCC in particular has been very stable politically, despite any issues that happen; the stability factor has been important there.

What is more important is the stability in the policies of governments as they evolve and develop the markets; introducing new regulations, pushing markets to move from frontier to emerging status. Stability of currency is very strong, GCC and the MENA region being closely pegged to the US dollar has helped with having stability in the market during turbulent times. We are optimistic that political turbulence will result in a better and more efficient government, as the government strives to develop the infrastructure and the human capital.

We believe that this, along with stability, will result in a better operating environment.

World Finance: And how do you manage risk?

Faisal Sarkhou: We at KAMCO have a sophisticated and well-developed risk framework that was built over the years, even before additional regulatory reform and policy that has come in the past four years. This has allowed us to remain operationally profitable during the entire financial crisis.

GCC in particular has been very stable politically

World Finance: What do you see as the major investment trend for 2014, and what do you foresee as being the major events that will affect the market?

Faisal Sarkhou: Always remember the context. The young population’s diversification journeys in the GCC for example, focus on the energy sector, aiming to diversify economies and generate more jobs for the populations that are coming into the workplace. It is that, alongside significant infrastructure spending.

The planned infrastructure spending in the GCC is at around $2.5trn. This is lead by Saudi and UAE markets, with all other GCC countries putting in significant amounts to develop infrastructure. That infrastructure development will help mostly on the defensive sectors of the markets.

It will have an impact on the health-care sector, the education sector, the housing sector and all of this will result in more jobs, more activity and better capital market movement in the future.

World Finance: Looking at your KAMCO research now; emerging markets have had a difficult year, why do you think this is and do you see them picking up?

Faisal Sarkhou: The start of this year they have had a bit of a better pick up as currency and debt issues are being resolved. However the MENA region in particular and the GCC have had one of their best years in 2013, with some of the markets performing in the top tier and 90 percent of them giving double-digit returns in growth and investor returns.

This is one of the key reasons that there is the stability of the exchange, the GDP growth that has happened, and the stability of the oil prices. So the MENA region in general has gone through a good year in 2013 and we expect it to continue this year, despite the political turbulence that is there.

We at KAMCO have a sophisticated and well-developed risk framework that was built over
the years

World Finance: Looking to the future now: what markets will you target for growth and investment?

Faisal Sarkhou: The strategy is focused on growing our activities in the MENA regions at this stage. We believe the prospects are positive and will remain positive.

If you look at all economic indicators you have got strong GDP expectations, the MENA block is expected to be in the top three in the world in terms of GDP growth. The impact of surpluses will be there; extensive government spending on infrastructure and human capital will also fuel this positive expectation. More political stability will also add to this.

We at KAMCO have established, and are establishing, a number of products that are spanning the MENA regions from our base in Kuwait, and we hope to grow those products as we truly believe these regions are here to grow and in a faster manner in the future.

World Finance: Faisal, thank you.

Faisal Sarkhou: Thank you Jenny.