This April, the 2016 Middle East Investment Conference, Beyond Borders: MENA’s Role in the Global Economy, will convene amid a market maelstrom of volatile oil prices, negative interest rates, geopolitical drama, and national budget revisions. Ahead of the event, we are delighted to share some thoughts published in CFA Institute’s Conference Proceedings Quarterly by speakers at some of our recent events.
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The 2016 CFA Institute Middle East Investment Conference will take place in Manama, Bahrain on 13 April, bringing together international thought leaders, policymakers, industry experts, and key market participants to consider the Middle East and North Africa (MENA) region and its role in the global economy.
Last year’s conference, which was held in Kuwait, included an overview of global economic conditions presented by Nouriel Roubini, a discussion of geopolitics and what its comeback means for investors facilitated by Philippa Malmgren, and an examination of the demographic dividend that could await the Middle East led by Amlan Roy.
The 2016 conference will feature sessions with the following speakers:
Co-hosted by CFA Society Bahrain and CFA Institute, the 2016 CFA Institute Middle East Investment Conference offers a unique opportunity for delegates to gain firsthand insights from leading experts and network with like-minded peers. Register now to attend the event and join us in Bahrain this April.
Keep up with information and updates about this event by subscribing to the Middle East Investment Conference blog.
All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
The United States is showing robust growth, China will have a bumpy landing, the oil price decline is a net positive for the global economy, and a Greek exit (Grexit) from the euro monetary block is unlikely, said distinguished economist Nouriel Roubini while delivering the closing keynote address at the 2015 CFA Institute Middle East Investment Conference in Kuwait City. In his characteristically enthusiastic style, and without using any slides or notes, Roubini gave a comprehensive review of the global economic outlook to an attentive audience of investment professionals. Here are the highlights.
US Showing Robust Growth
Roubini’s assessment is that of the four engines of the global economy — the United States, the EU, Japan, and China — only the United States is showing robust economic growth, with an estimated GDP growth rate of around 3%. Despite the recent appreciation of the US dollar and anemic global aggregate demand, Roubini expects the US recovery to continue, barring a sharp downturn in the global economy. The economist believes the eurozone is “in trouble” and “just one shock away” from recession and that Japan made a policy mistake of introducing a consumption tax too soon. He said that China is slowing down and would have “a bumpy and rough” landing, with an expected GDP growth of 6.5% this year and around 5.5% next year. China is realising that it needs to change its growth model, moving from fixed investment to consumption. But the rebalancing of the Chinese economy is coming slowly, he added.
At the 2015 CFA Institute Middle East Investment Conference, energy expert Fereidun Fesharaki presented a grim picture of the global energy markets. Against a backdrop of volatile energy prices, the founder and chairman of FGE discussed the changing energy landscape and argued that the recent major drop in the oil price is structural rather than cyclical, adding that he expects a rebound in the oil price only in 2017/18. He believes this structural shift is good news for the global economy but bad news for oil exporting countries.
The Structural vs. Cyclical Debate
Fesharaki’s main argument was that oil price change is structural because of the way the United States has transformed as an energy producer during recent years with very few people noticing. He explained that while the United States was producing between 4.5 and 5 million barrels per day (mbd) 2 to 3 years ago, today it is producing an additional 4.5 mbd, which is more than Kuwait at 3 mbd. In the liquefied natural gas (LNG) space, he said the United States is now among the top three exporters, while just three years ago it was importing LNG. And the same goes for propane, an important fuel in the energy system, he added. Qatar, Abu Dhabi, and Kuwait were the top three producers of propane about three years ago. Currently, US production of propane is larger than the three countries combined. Fesharaki argued that with the increasing US dominance in the energy sector, it is clear why the price adjustment is structural rather than cyclical.
The 2016 CFA Institute Middle East Investment Conference will take place in Bahrain on 13 April 2016, bringing together international thought leaders, policymakers, industry experts and key market participants from across the region to consider MENA’s Role in the Global Economy.
The opportunity to exploit a gigantic demographic dividend was dangled in front of the audience at the 2015 CFA Institute Middle East Investment Conference by Amlan Roy, managing director and head of global demographics and pensions research at Credit Suisse Securities (Europe) Limited. But this enticing opportunity is accompanied by many avoidable threats and risks.
The economist began by quoting Peter Drucker, a leading management guru, who said, “The single most important factor that nobody pays attention to is ‘demographics,’ and when they do pay attention, they miss the point.” Roy noted that demographics do not equal age and age alone. Age is simply one characteristic of a large number of variables and differences in any heterogeneous population.
The 2016 CFA Institute Middle East Investment Conference will take place in Bahrain on 13 April 2016, bringing together international thought leaders, policymakers, industry experts and key market participants from across the region to consider MENA’s Role in the Global Economy.
Behavioural finance adds value by combining psychology with economics and helping investors make “conscious, logical, and rational” decisions, said Paul Craven, a behavioural finance coach, at the 2015 CFA Institute Middle East Investment Conference in Kuwait. He believes there are practical measures investment professionals can take to address their behavioural biases.
Quoting Nobel Prize winner Daniel Kahneman, Craven explained that we are all prone to using faster and instinctive thinking (System 1 thinking) even in situations when we really should be employing slower and analytical thinking (System 2 thinking). When the price of oil is at a record high, investors feel bullish about it, and when it hits a record low, investors feel bearish about it. Craven said this is an example of employing System 1 thinking when we should really be using System 2 thinking — rationality demands buying low and selling high, not the other way around. Craven cited legendary investor Benjamin Graham: “With every new wave of optimism or pessimism, we are ready to abandon history and time-tested principles, but we cling tenaciously and unquestioningly to our prejudices.” When most investors are feeling euphoric, clinging to their prejudices, it’s the point of maximum risk, not opportunity, added Craven.
“We now have a whole generation that does not remember the last time that geopolitics was a driver to price movements in markets,” said Philippa Malmgren, president and founder of DRPM Group, at the 2015 CFA Institute Middle East Investment Conference in Kuwait City. The geopolitics of the Middle East, the United States, Russia, and China has created a new Cold War of unquantifiable forces that is more than capable of moving markets, Malmgren told her audience of Middle Eastern investors.
What is making matters worse for investors is that “we are all so specialized these days,” Malmgren added. “We have a globalized, interconnected world that is being run by people in narrow and specific silos.” Malmgren’s mission is to return geopolitics to the forefront of the landscape where it belongs, having spent many years after the end of the Cold War on the sidelines of investor attention. She believes defense and geopolitics have been marginalized for too long, as investors bask in a post–Cold War peace dividend and long periods of moderate inflation.
In the last decade, we have created an extraordinary debt problem and a slowdown in the world economy that has been brought about by that debt, according to Malmgren. Central banks in the developed countries have been doing their level best to create inflation whilst at the same time saying their loose monetary policies are not yet having the desired effect and so must be continued, she added. For emerging markets, such as those in the Middle East, “it is hard to believe the addition of record sums of capital into the markets have had no effect,” said Malmgren. When quantitative easing was in full flow, commodities prices, property, rents, and stock markets all hit new highs.
In the lead up to the 2015 Middle East Investment Conference, to be held in Kuwait on 10 February 2015, CFA Institute conducted its fifth annual Middle East Market Sentiment Survey. From 13 to 22 January 2015, CFA charterholders and CFA Institute members in nine countries across the Middle East were invited to participate in an online survey. The survey received 166 responses, most of which came from the United Arab Emirates (36%), Saudi Arabia (21%), and Kuwait (18%). Many of the respondents were middle level (65%) or seasoned professionals with at least 10 years of work experience (37%). They were asked a number of questions, ranging from what will drive investments to their expectations about the price of oil.
Here are some of the survey highlights:
In an interview ahead of the 2015 CFA Institute Middle East Investment Conference in Kuwait, Rafik Hafez, CFA, president of CFA Society Kuwait, discusses the conference themes and highlights some speakers and issues affecting investment professionals in the Middle East.
Hafez says that one of the most interesting aspects of this conference is that it will cover a broad range of topics for investment professionals, including geopolitics, demographics, behavioural finance and the outlook for the oil sector, which is of particular interest to investment professionals in the Middle East. He emphasised that the society is honoured to host this regional conference under the patronage of His Excellency Anas K. Al-Saleh, the Kuwait minister of finance, and is looking forward to hearing from Nayef F. Al-Hajraf, chairman and managing director of the Capital Markets Authority of Kuwait. Hafez says the attendees are eager to hear Nouriel Roubini‘s outlook for 2015.
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It is widely known in business and finance circles that China has been a significant contributor to global growth. By some estimates, China contributed to as much as a third to worldwide growth from 2010 to 2013. With recent report that China’s growth disappointed in 2014 and may well continue to remain at a record low level in the coming years, investors naturally worry if China, and more broadly Asia, will continue to be the world’s growth engine.
Economists seem to be less concerned. Steven Barnett of the IMF argues that, for one, slower growth rates do not necessarily translate into smaller contributions to world growth. In USD terms, China’s share of world GDP grew from 2% in 1995 to 12% in 2013. (The numbers are 6% and 15% if you look at it in terms of purchasing power parity.) Barnett estimates that China’s contribution to global growth will actually increase even at the much lower growth rates currently forecasted. Read More
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