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Gulf Wealth seeks Haven from Euro Debt Crisis

Abu Dhabi, 25/11/2011 - Wealthy Gulf savers are fleeing euro-denominated investments as the European sovereign debt crisis deepens, bankers say. Gulf investors are increasingly parking their savings in havens such as US treasury bills, Swiss francs and Abu Dhabi bonds as the single currency flounders. The number of high net-worth customers requesting advice on moving their investments from euros to other currencies has risen sharply in the past few weeks, said Arnaud Leclercq, the head of Middle East, Eastern Europe and Central Asia at Lombard Odier, a Swiss private bank. "The feeling of insecurity and of fear is almost unanimous," he said.

The euro sank to a two-month low yesterday after an auction of German bonds ended with almost half of the paper unsold. The Bundesbank was forced to purchase 39 per cent of the €6 billion (Dh29.3bn) auction of 10-year bonds Germany had hoped to sell to banks and other investors. As the sovereign debt crisis starts to affect Germany, the biggest economy in the 17-nation currency bloc, Japan's Nikkei 225 Index fell 1.8 per cent to 8,165.18, the lowest level since 2009. Positive manufacturing data from Germany failed to lift European stocks, with the Euro Stoxx 50 index losing 0.2 per cent. The euro also fell 1.3 per cent to $1.3333 against the dollar, its lowest since October 4.

Fitch Ratings also cut Portugal's credit rating to "junk" yesterday in light of a worsening picture for Europe's economy. The ratings agency lowered Portugal's credit rating by one notch to "BB plus" with a "negative" outlook. France reiterated calls for the European Central Bank (ECB) to intervene in bond markets, but European leaders reached no agreement at a meeting in Strasbourg yesterday. Nicolas Sarkozy, the French president, had attempted to persuade Angela Merkel, Germany's chancellor, to allow the ECB to intervene in bond markets to restore stability, Reuters reported yesterday.

With the European economy buckling under the weight of the continent's debt crisis, many Gulf investors were shunning the euro zone and instead focusing their investments closer to home, said Zafar Khan, the chief executive at Falcon Private Bank, a Swiss bank owned by Abu Dhabi's Aabar Investments. "They're looking at the news, and they're worried and they're reducing their exposure," he said. "From a client's perspective, the main focus is GCC, especially fixed income instruments. That's where they're finding safety -bonds like International Petroleum Investment Company, Mubadala, Taqa and Abu Dhabi Government bonds," Mr Khan added. "Even if you look at Dubai credits, it's very, very stable," he said. Lombard Odier is advising clients on how to hedge their euro holdings, but also notes stocks in European companies in sectors such as telecommunications and luxury goods now look attractive, Mr Leclercq added.  "Depending on the client, either we try to find the best ways to secure their assets for those who are most concerned and to find opportunities in these markets," he said.

Institutional clients in the Gulf were also coming under pressure to reduce their euro holdings as markets waver, said Ulrich Kater, the chief economist at DekaBank, one of Germany's largest asset managers. "The problem for institutional clients is they cannot bear volatility," he said. "That's really difficult for institutional clients who operate under strict regulations." DekaBank is the central asset manager for Sparkassen-Finanzgruppe, a network of Germany banks which is the world's biggest financial network with €2.6 trillion in total assets. With the financial crisis worsening, resolution of the turmoil in the euro zone would ultimately rest in the hands of European leaders' attempts to find a political solution to structural flaws in the single currency, Mr Kater added. "The western countries for the first time in history, have reached the limits of public debt," he said.

"Deflation is the last thing which is lacking for a complete catastrophe."

Source: The National

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