Special Report: Money matters
Gulf Business|June 2021
Exploring the future of wealth management in the GCC
ZAINAB MANSOOR

The numbers game

The concept of wealth has evolved significantly – from clothes and metals to fiat and digital currencies, wealth has not only changed hands but forms as well.

As wealth evolved, so did the art of managing it. Hence wealth management too has gone through layers of disruption to morph into its current advisory form, which broadly incorporates financial planning, portfolio management and financial services, primarily to increase a client’s asset base. What remains relatively unscathed is the value of wealth itself – that of being an economic enabler, necessitating a deeper understanding of who owns it, how it is spent and the trends that govern it.

Since differing asset classes have diverse yields, which can be imputed to their risk and return parameters and the prevalent economic conditions at the time, and since no asset class has been found to outperform its peers perennially, it is noteworthy to weigh them according to the dynamic investment climate. Which is why mapping out a diverse investment portfolio is only judicious.

Furthermore, as the digital and financial landscape further evolves and as priorities of well-heeled individuals shift, will wealth retain its current form or is it expected to be redefined in years to come?

By 2040, wealth won’t just grow, it will be redefined, fueled by a more knowledgeable and empowered client base, rapid digitisation, and far greater choice of providers and services, according to a Boston Consulting Group (BCG) report.

Furthermore, the pool of wealthy clients will change in the next 20 years – they will be more educated and economically empowered; more wealth will be in more hands globally; wealth in growth markets will increase faster than in mature markets; and women will grow their wealth faster than men, the report read.

“The wealth management landscape is undeniably evolving and more rapidly so, following the impact the Covid-19 pandemic is having on the industry. Challenging times can be a catalyst for future innovation and growth. The pandemic has accelerated digital transformation in the industry and forced it to react and adapt quickly,” notes Ludovic Pernot, head of Private Banking Middle East at Liechtensteinische Landesbank AG (LLB).

“Work has changed, supported by an ecosystem of virtual resources and technologies, which will continue to evolve and will help the industry become more dynamic and more efficient to deliver better value to clients. While focusing more on a holistic approach, personalised advice will remain the most critical and valuable trend, supported by an array of technological solutions, to benefit from greatly in the long run.”

Commodities

GOLD: SAFE STAMPED?

From stowing the physical metal in the form of coins, bars or jewellery, piling into ETFs or investing in gold mining stocks, investment in gold comes in many forms. Last year proved to be monumental for the bullion, with the asset vaulting into a record territory of above $2,000 an ounce.

However, gold’s performance this year has been relatively modest. In January 2021, ABN AMRO revised its gold outlook, with its new year-end 2021 forecast stationed at $1,700 per ounce from its previous estimate of $2,000 per ounce.

Christopher Mellor, head of EMEA ETF Equity and Commodity Product Management at Invesco, opines that it is always difficult to assess the valuation case for gold as, like all commodities, the price will be determined by the dynamics of supply and demand.

“Supply for gold is constrained, with mining increasing the total amount of gold above ground by around 1.5 per cent per annum. With only a finite supply of unmined gold, this source of supply is likely to shrink over the longer-term. On the demand side, jewellery making, central bank purchases and technology fabrication are fairly consistent sources of demand but the key swing factor in gold demand is investment. In 2020, $12.5bn of inflows into gold ETPs globally helped to drive the price of gold to a record high. Outflows totalling $2.2bn from ETPs in Q1 this year have helped to dampen gold prices somewhat, but we are seeing a return to gold ETP purchases in April with $0.6bn added in the month,” says Mellor.

The highest price for gold this year was during the first week of January when it reached $1,950, adds Pernot.

“Gold prices have been consolidating since August 2020. Technically, around March 8th it was at the lower edge of a ‘flag’ formation and fell below the 200-day moving average. However, the current price should reflect the rise in interest rates, the moderate strengthening of the US dollar and a cyclical turn in the economy. Thus, the question of the interest rate development going forward remains,” he adds.

“We think that the potential for rising interest rates – especially in the US is limited, which is positive for gold. In addition, the continuously increasing debt burden – worldwide – poses risks that should not be underestimated, which is also positive for gold. Hence, we are still constructive on gold; for us, the long-term trends in fiscal spending are the most relevant drivers of price appreciation for gold going forward.”

OIL: SUSTAINED REVIVAL

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