Gulf’s wealthy rebalance portfolios during war

• Banker sees ‘limited’ cash movement
• Investors shift to safer assets
• Risk exposures have been reduced

The Middle East division head of Swiss private bank Mirabaud has disputed concerns earlier in the Iran conflict that billions of dollars of Gulf wealth would move abroad due to security risks. 

“We saw no change in booking requirements from, say, the DIFC [Dubai International Finance Centre] to Switzerland. It was very stable in terms of movement of cash to another jurisdiction,” Georges Khoueiri, chief executive of Mirabaud Middle East, told AGBI. 

Retail banks have seen some “limited” movement, he added, “but nothing like the billions of dollars predicted in the first few weeks of the conflict”. 

Rating agency S&P Global warned in March that Gulf banks could face domestic deposit outflows of $307 billion if the conflict deepened. It said it had seen no evidence of major outflows at that point. 

In general, the Gulf’s wealthy are taking steps to reduce risk in their asset portfolios as regional tensions persist, Khoueiri said. Such defensive strategies include diversifying investments, increasing liquidity and limiting exposure to riskier asset classes such as emerging-market fixed income.

In multi-asset portfolios, emerging-market fixed income is especially high-risk due to its sensitivity to inflation risks and high oil prices, according to Khoueiri. “Our advice to clients has been [to pursue] greater selectivity, a stronger focus on diversification, liquidity and resilience and reduce any risky positions they have.” 

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Investments that usually retain some hedge against volatility include private assets, private equity, gold and non-energy commodities. “We have reduced some positions and taken a conservative approach while trying to maintain a long-term view and not panic,” Khoueiri said. 

Global equity markets experienced a sharp downtrend at the start of the Iran conflict, with the world’s biggest indices falling around 10 percent between February 28 and the end of March. 

Markets rallied after a two-week ceasefire was put in place and then extended indefinitely, with the S&P500 and Nasdaq closing at record highs last Wednesday. However, markets remain volatile while US-Iran peace talks stall and the Strait of Hormuz remains all but closed. 

Patrick Akiki, partner and financial services market leader at consultancy PwC in Switzerland, said Gulf investors, including high-net-worth individuals, sovereigns and family offices, are exploring strategies that offer a lower risk profile as global uncertainties increase. 

“These include increasing liquidity with cash or cash-like assets to maintain financial flexibility, while reducing exposure to riskier assets such as emerging-market debt due to rising interest rates, currency volatility and geopolitical concerns,” he said.   

Private equity remains a key allocation for many family offices, Akiki added. 

“They’re also boosting resilience by diversifying into safer jurisdictions and using a mix of assets, including alternative asset classes, to better handle market ups and downs.”

Further reading:

• US asset manager has loaned $10bn to Gulf investors during war
• UAE’s top banks boost provisions as Iran war clouds outlook
• Trump says US mulling UAE currency swap

Family offices told AGBI in March they were reducing their exposure to US assets. 

Khoueiri said Geneva-based Mirabaud is awaiting regulatory approval from the DIFC in the coming weeks to offer “the full spectrum” of sharia-compliant banking solutions in response to rising demand from Gulf nationals and Arab expats, who make up less than 40 percent of its regional business. 

Mirabaud aims eventually to expand its business eastwards in Muslim-majority countries such as Malaysia and Brunei.