Sunday, Sep 07, 2008

Dubai: Amidst the general uncertainty continuing to beset the capital markets in the developed world, the Middle East offers one of the bright spots in emerging markets for investment banking, a new McKinsey research shows.

Investment banks are increasingly looking at the region as a new source of revenues to compensate for leaner times at home.

The region "is likely to enjoy the fastest capital market expansion in the emerging world under both of our scenarios. Revenue pools will grow by 25 and 16 per cent a year under the optimistic and pessimistic ones, respectively from 2007 to 2010," the research points out.

Several factors suggest that the region is likely to emerge a winner, the report says. One, the macroeconomic environment remains comparatively strong. Higher oil prices have triggered an unprecedented wave of investments in industrial and infrastructure projects. It is estimated, by some accounts, that the Gulf Cooperation Council countries will have invested around $3 trillion in the region by 2020.

Also, many domestic companies are using these resources to become global players and wealthy investors of the region too are investing around the world. The new breed of global corporate players, notably in the UAE, says McKinsey, "now demand the sort of investment banking services previously reserved for large Western multinational. This new group thus represents an increasingly attractive fee pool."

The efforts to modernise their regulatory and institutional frameworks, while government and listed companies increasingly embracing Islamic structures to support the growth of sukuk have led the investment banks to make their presence felt.

"Even under our pessimistic scenario, the medium term outlook for capital markets in the middle East remains positive," the report adds. "The sheer magnitude of the wealth accumulated over the past few years should help support the market if a protracted economic recession ever chokes global demand for oil and slows the flow of capital into the GCC."

By Gaurav Ghose

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