Investors are optimistic but vigilant amid inflation, recession fears

Investors in the UAE are optimistic and vigilant about the regional economy in contrast to their global peers who are concerned about a combination of higher inflation, the war in Ukraine, and the potential for a recession or stagflation, according to investment experts.

In the UAE, as inflation pressures and geopolitical risks continue to contribute to a sense of uncertainty and volatility, investors remain vigilant.

Ali Janoudi, head of UBS Wealth Management for the Middle East, Turkey and Africa, said business owners in the region, while also concerned about rising prices and the cost of materials, are optimistic about the regional economy for the next year and plan to continue hiring.

An investor sentiment survey of over 2,800 investors and 1,100 business owners across 14 markets by UBS found that investors worldwide are focused on their retirement savings, with some holding off on making big purchases.

In Kearney’s FDI Confidence Index, the UAE remains the Middle East’s top hotspot for foreign capital inflows, while improving its ranking from 15th last year to 14th this year.

The strong global investor confidence in the UAE is reflected in a forecast by Henley & Partners that about 4,000 millionaires are expected to emigrate to the UAE this year. These newcomers include Asians who no longer want to endure pandemic lockdowns, newly-minted cryptocurrency moguls, and high-level professionals who benefit from the UAE’s relaxed visa policies.

Rudolph Lohmeyer, partner and head of Kearney’s National Transformations Institute, said the success of the Expo coupled with the UAE’s continued investment in advanced technological infrastructure has diversified the economy, making the country more attractive for investors.

Meanwhile, a strong containment of the Covid-19 pandemic has meant that the UAE was a bright spot for international tourism in 2021 and the first half of 2022, which contributed to a quicker economic rebound vis a vis many other emerging markets, said Lohmeyer.

“Central to the country’s attractiveness as a business and financial hub are plans to deepen trade ties in fast-growing economies in Asia and Africa with the aim to invite $150 billion in foreign investment,” said Lohmeyer.

During the past decade (2012 to 2021), FDIs in the country increased by 116 per cent, amounting to $20.667 billion in 2021 compared to $9.566 billion in 2012, according to the Ministry of Economy in the UAE. In 2021, foreign direct investment inflows to the UAE recorded a 3.9 per cent growth to reach nearly Dh76 billion. Over the next three years, Kearney’s researchers project a strong average growth of 5.4 per cent, bolstered by institutional reforms to promote trade and investment and improve the ease of doing business in the country.

UBS said with investor optimism waning, nearly three out of four investors are now worried about making bad investment decisions in the current environment and are holding onto cash.

“Investors across the globe are concerned about the combination of higher inflation, the war in Ukraine, and the potential for a recession,” said Iqbal Khan, president of UBS Europe, Middle East, and Africa and co-president of UBS Global Wealth Management.

Inflation, cybersecurity and the risk of a potential recession are key concerns for UAE investors, with as many as 45 per cent of them holding off on big purchases and 72 per cent concerned about the long-term impact on retirement savings and funds for future generations.

When it comes to investing further in the market, 33 per cent of investors in the UAE would increase investments if the markets decline by a further 10 per cent. Business owners in the UAE are also concerned about rising material costs, and 44 per cent have raised prices in the past six months, with 48 per cent set to increase in the next half year.

— issacjohn@khaleejtimes.com