Abu Dhabi woos investors in Asia after Dubai crisis

PUBLISHED : Monday, 01 February, 2010, 12:00am
UPDATED : Monday, 01 February, 2010, 12:00am

An investment arm of the Abu Dhabi government was in Hong Kong last week attempting to drum up business and shake off any negative fallout from the credit crisis affecting the neighbouring emirate of Dubai.

Top executives of Invest AD also made stops in Beijing and Singapore during their trip to the region. They talked to fund houses about setting up investment products for their clients that would tap into growth in the Middle East and Africa.

'The reaction has been actually a lot more positive than we thought,' said Mohammed Salih al-Hashemi, an executive director of Invest AD.

'They feel there is something they need to offer [their clients], not just in terms of pulling old products off the shelf, but actually a genuine new diversification story.'

The Middle East and Africa have long appealed to investors because they have disproportionate amounts of the world's resources and young, fast-growing populations. Corporate governance concerns have tempered enthusiasm for the regions, however.

That caution was seemingly validated in November last year when the once-boomtown of Dubai announced that it had overspent and come up short on its debt repayments. But the situation has since stabilised after the city state received an emergency US$10 billion lifeline from its fellow emirate, Abu Dhabi.

Meanwhile, regional economic growth has been resilient despite the global slump and is widely projected to improve this year. The International Monetary Fund increased its 2010 growth target for the Middle East last week to 4.5 per cent from 4.2 per cent. 'Talking about opportunities in the region, it's almost like Southeast Asia was many years ago when they talked about Asian tigers,' said David Sanders, the chief investment officer of Invest AD.

'And there are not a lot of regions in the world that are growing economically at the moment.'

Local investors already live in the backyard of one of the world's most robust economies, however. And outside China, they can have their pick of fast-growing heavyweights like India, Indonesia, Taiwan and South Korea.

'I can buy Asian sovereign debt with a very attractive yield at the moment, so why would I need to buy something from the Middle East?' asked Danny Yan, an assistant director at Taifook Asset Management.

But supporters argue that an improved access to the Middle Eastern and African markets would provide opportunities for portfolio diversification. And savvy investors may welcome the chance to tap into the upside potential of some of the less well-known companies.

Patrick Yiu Ho-yin, the managing director of CASH Asset Management, said he would monitor reports of any new products targeting those regions and then evaluate them once they are launched.

Invest AD said it was talking with local houses about tie-ups which would divide the labour between them. It would identify a pool of stocks suitable for a specified type of fund, for example, and then the partner would compile, market and distribute it.

'We view it as a car,' Sanders said. 'They build the car and we put the engine in.'

Invest AD covers stocks across the board throughout the Middle East and Africa, from Saudi Arabian dairy farms to Tunisian aluminium profile makers. Having an on-the-ground presence is crucial towards being able to identify winners in a region not known for its transparency, al-Hashemi said.

'The companies are not as accustomed as the more developed zones to the whole investor-company interaction,' he added. 'So being granted access is still something privileged and something we could leverage on.'

Invest AD, formally known as Abu Dhabi Investment, was created in 1977. It is owned by a sovereign wealth fund of the United Arab Emirates and has a mandate to attract and manage third-party funds as well as invest and manage government assets. Abu Dhabi is the capital and second-largest city in the UAE, which is positioned between Saudi Arabia and the Persian Gulf. The country consists of a federation of seven emirates, which were formally united in the 1970s.

Large-scale oil production in the UAE began less than 50 years ago. Until then, it had been dependent on an agrarian-style economy with camel breeding and fishing.

The government has since pumped revenues from petroleum and natural gas exports back into domestic development projects. And the UAE had the seventh-highest per-capita income in 2008 at just over US$55,000 per person. Hong Kong was 27th with a tally of US$30,726, according to the IMF.

Bright outlook

The Middle East has proved resilient amid the global economic slump

The International Monetary Fund has raised its 2010 growth target for the region from 4.2 per cent to: 4.5%