Gulf asset managers to face pressure amid twin shock - Moody's

Current weak oil prices will hold back economic growth

  

DUBAI- Asset managers in most of the Gulf will face moderate-to-high pressure on their profitability over the next year to 18 months as a result of low oil prices and the coronavirus pandemic, rating agency Moody's said on Monday.

The twin shocks of the oil price crash earlier this year coinciding with the spread of the coronavirus in the region have put pressure on the six-member Gulf Cooperation Council's (GCC) economies, leading most governments to cut spending and raise debt.

"Current weak oil prices will hold back economic growth and public spending across the region, with negative consequences for asset managers," Moody's said.

"Oil is also a key source of revenue for the sector's investor base, which consists largely of local high net worth individuals, family offices and government-related institutions, including sovereign wealth funds."

But the ratings agency said GCC countries' plans to reduce their dependence on hydrocarbons, as well as privatisation efforts, "should contribute to medium-to-long-term growth, and encourage the development of capital markets".

Though Moody's expects diversification to take time, it will eventually spur private investment, attract international investors and therefore support the asset management industry's growth.

Most GCC countries have sought to encourage foreign investors since 2014, when falling oil prices made economic diversification more urgent, leading to market reforms.

According to PwC, total foreign ownership of GCC equities was about $60 billion at the end of March 2018, about 6% of total market capitalisation, Moody's said.

Saudi Arabia, the United Arab Emirates and Bahrain have led in recent regulatory improvements, Moody's said, and the ratings agency expects other Gulf nations to catch up in time.

"GCC asset managers are under pressure to align their corporate governance policies with international standards following the failure of Dubai-based private equity firm Abraaj Group in June 2018," Moody's said. Abraaj collapsed in the aftermath of a row with investors over the use of money in a $1 billion healthcare fund.

(Reporting by Yousef Saba) ((Yousef.Saba@thomsonreuters.com; +971562166204))