Page 1

ISSUE 50 | MAY 2019

The long-term investor Ghassan Aboud, entrepreneur, philanthropist and founder of Ghassan Aboud Group

The long-term investor

A CPI Financial publication

Ghassan Aboud, entrepreneur, philanthropist and founder of Ghassan Aboud Group

30/05/2019 12:33

page 3-4 contents 50.indd 1

Dubai Technology and Media Free Zone Authority

WEALTH ARABIA

MAY 2019


Contents ISSUE 50 | MAY 2019

10

EDITOR'S LETTER

W

elcome to the 50th issue of WEALTH Arabia. With this milestone issue, I’d like to take this opportunity to look back on my five years editing this magazine. When I joined, I wanted to turn the magazine into something more actionable and experiential. In that time, we’ve had some of the best minds in the investment world looking forward at the biggest changes to come, as well as diving in specifically to important trends and developments. We’ve spoken to some fascinating characters as well, including Sonam Kapoor and, returning in this issue, the legendary Will Smith. We’ve travelled the world—from a private island in Cambodia to the dirty water of Boston. I’m proud of the relationships that the magazine has built with the industry, and with its readers. With the launch of the WEALTH Arabia Summit, we were able to bring the conversation directly to you our readers, and we have truly built that into something I am proud of, and something that differentiates itself from the other conferences that try to tackle these issues. WEALTH has been a wonderful experience for me, and I thank you all for coming along with me on that journey, and I thank all the people who worked on and contributed to the magazine and our events in this half decade. Till next time,

NEWS & ANALYSIS The latest analysis from the investment world

8

OPINION On the business of billionaires

9

COVER STORY A long-term investor

10

INVESTMENT

16 Mean reversion or just rationality? 24 What can we learn from 200 years of emerging market bond history?

28 Caveat emptor 32 Evolving alongside clients 36 Japan’s strengthening fundamentals are going unnoticed

24

36

William Mullally wealtharabia.net

3


44

P.O. Box 502491, Dubai Media City, UAE Tel: +971 4 391 4681 Fax: +971 4 390 9576

wealtharabia.net CHAIRMAN

SALEH AL AKRABI CHIEF EXECUTIVE OFFICER

NIGEL RODRIGUES nigel.rodrigues@cpifinancial.net Tel: +971 4 391 4681 EDITOR - WEALTH ARABIA

WILLIAM MULLALLY william@cpifinancial.net Tel: +971 4 391 3718

SENIOR EDITOR

MATT AMLÔT matt@cpifinancial.net Tel: +971 4 391 3716

52

MOTORING Driving the 2019 Macan across the German countryside

44

FOOD Like grandmother used to make

52

72

EDITORS

BUSINESS

ISLA MACFARLANE isla@cpifinancial.net Tel: +44 7875 429476

NEEMA SAJNANI neema.sajnani@cpifinancial.net Tel: +971 4 391 3717

EDITORIAL ASSISTANT

60

DIGITAL MANAGER

66

TRAVEL The ‘wonder and awe’ of the Middle East

72

EVENTS The WEALTH Arabia Summit 2019

74

CONTRACT PUBLISHING EDITOR

ASSOCIATE PUBLISHER

CHIEF DESIGNER

WEALTH ARABIA ISSUE 50 | MAY 2019

The long-term investor A CPI Financial publication

Ghassan Aboud, entrepreneur, philanthropist and founder of Ghassan Aboud Group

page 3-4 contents 50.indd 1

Dubai Technology and Media Free Zone Authority

The long-term investor Ghassan Aboud, entrepreneur, philanthropist and founder of Ghassan Aboud Group

Remember, if you wish to act on any of the information you read in WEALTH Arabia, consider taking independent advice first. WEALTH Arabia is written for a general audience and the information contained herein may not be appropriate for your personal circumstances.

30/05/2019 12:33

JAMIE O'LOANE jamie.oloane@cpifinancial.net Tel: +971 4 433 5321 SENIOR DESIGNER

BUENAVENTURA JALUAG, JR. jun@cpifinancial.net Tel: +971 4 391 3719

FLORANTE MAGSAKAY florante@cpifinancial.net Tel: +971 4 391 3724

EVENTS MANAGER

EVENTS MARKETING

MANAGER SHAIK MANSOOR CRIS BALATBAT shaik.mansoor@cpifinancial.net cris.balatbat@cpifinancial.net Tel: +971 4 365 4538 Tel: +971 4 391 3725 CONFERENCE PRODUCER

HITESHWAR BHAKHRI hitesh.bhakhri@cpifinancial.net Tel: +971 4 433 5322 FINANCE & DATA MANAGER

SHAIS MEMON, ACCA, CMA shais.memon@cpifinancial.net Tel: +971 4 391 3727 RIZZA INFANTE rizza@cpifinancial.net Tel: +971 4 391 4682

WEALTH WARNING!

EDITORIAL

editorial@cpifinancial.net

HR & OFFICE MANAGER

MAY 2019

ADVERTISING

sales@cpifinancial.net

DEOGENES E. ABEJUELA JR deo.abejuela@cpifinancial.net Tel: +971 4 391 3722

JESSICA COMBES jessica@cpifinancial.net Tel: +971 4 364 2024

DESIGN A workshop that’s redefining art

DANIEL BATEMAN daniel@cpifinancial.net Tel: +971 4 375 2526

DEVELOPMENT MANAGERS NABILAH ANNUAR NAP ESTAMPADOR nabilah.annuar@cpifinancial.net nap.estampador@cpifinancial.net Tel: +971 4 391 3726 Tel: +971 4 433 5320

KUDA MUZORIWA kuda.muzoriwa@cpifinancial.net Tel: +971 4 391 3729

ART Embracing the Orientalists

BUSINESS DEVELOPMENT DIRECTOR

ADMINISTRATION & SUBSCRIPTIONS

CAROL BASA carol@cpifinancial.net Tel: +971 4 391 3709

enquiries@cpifinancial.net ©2018 CPI Financial. All rights reserved. No part of this publication may be reproduced or used in any form of advertising without prior permission in writing from the editor. Printed by Al Ghurair Printing & Publishing, Dubai, UAE

Don’t miss your copy of WEALTH Arabia. Subscribe now, full details at: www.wealtharabia.net and on Twitter @wealtharabia. PUBLISHED BY CPI FINANCIAL FZ LLC REGISTERED AT DUBAI MEDIA CITY, DUBAI, U.A.E.

4


Not your copy? WEALTH Arabia is a controlled circulation magazine delivered directly to specific, named HNWI individuals across the GCC. Institutions may also arrange bulk purchase orders of the magazine and its supplements to circulate among internal and external stakeholders. If you wish to arrange regular bulk deliveries, please contact subscriptions@cpifinancial.net for terms. Annual individual subscription (4 issues/year) US$40

CPI Financial, PO Box 502491, 1209 Shatha Tower,

To subscribe, fill inDubai, the order Dubaisimply Media City, UAE. form and return it, with your cheque for US$40 to: CPI Financial, PO Box 502491, 1209 Shatha Tower, Dubai Media City, Dubai, UAE. NAME POSITION COMPANY ADDRESS LINE 1 ADDRESS LINE 2 ADDRESS LINE 3 PO BOX ZIP/POSTAL CODE COUNTRY

CPI Financial FZ LLC • PO Box 502491 Al Shatha Tower, Office 1209 Dubai Media City, Dubai, U.A.E. Tel: +971 (0) 4 391 4681 • Fax: +971 (0) 4 390 9576 www.cpifinancial.net


NEWS & ANALYSIS

A

ll eyes in the investment world are on China. Is 2019 the right year to invest? Likely yes, as it may be a year that China will prioritise growth more than any other.

This year is also one of the most important years for China ever, as it is the 70th anniversary of the party, but also, perhaps more importantly, it is the anniversary of 1989 and Tiananmen Square. Nothing can go wrong, literally nothing, in China in 2019. Through that you have higher probability of a trade deal.” Steen Jakobsen Chief Investment Officer, Saxo Bank

U

nion Bancaire Privee told WEALTH Arabia it will soon launch a new fund which signals its investment strategy for the long term. 

Didier Chan-Voc-Chun Managing Director - Head of MultiManagement, Union Bancaire Privée

We are focusing on four trends, which might reflect upcoming themes. Business models are disrupting the old economy and continuing to do so, so the first trend is disruptive innovation. Also, the way we consume is different than it was thirty years ago and will be different tomorrow—so the second trend is consumer patterns. The third is about demographics. Growing or aging populations in different parts of the world will always create lots of opportunities in terms of investments. Finally, the last trend is about climate change. We think that there are economic, environmental and corporate incentives for companies that are tied to climate change. Within these trends, themes will emerge, evolve in the function of their own cycle or be disrupted themselves. “We want to set clearly a long-term picture. Some themes will certainly evolve and disrupt themselves and grow, but the picture of these four trends is that they are here to last. It’s a very long-term approach that we have put in place. We want to pick things that are going to have an impact on people’s lives, and have an impact on companies over the long term. We are using our framework with an ESG filter where we focus on themes that fit that lens. It’s not an ESG fund as such, but there is a ESG lens that we look at it through. ESG matters for us as a company and a team.”

8


OPINION

On the business of billionaires

T

here’s been a debate this year, starting in the US and then moving worldwide, over what value billionaires can bring their respective societies, and the world on a whole. Until this point, in most mainstream coverage, the increasing ranks of billionaires have been covered in many different ways— as a curio, an aspiration, and in the ways they both lavishly spend, invest, and give back their wealth. What they mean from an economic perspective is still a new conversation. Some have called for abolishing billionaires altogether, while others have defended billionaires such as Bill Gates for their ability to focus their wealth towards specific goals. The matter is far from settled. I sat down with an economist friend of mine recently, Steen Jakobsen, Chief Investment Officer of Saxo Bank, and posed the question to him. He does recognise a problem, but the problem is not necessarily with all billionaires—it’s with the system that has created some of them. “The issue is—what is the economic utility to society of someone having $30 billion? It’s zero. Why is it zero? Because that person’s ability to expand consumption or start new businesses is limited. If anything, a large number of the people who have double digit billionaire status have that because they have a monopoly and a monopoly is the single biggest 9

attack on the capitalistic system,” says Jakobsen. For policymakers, he has a different call than just talking about billionaires. “Address the whole monopoly status that exists in information technology and to some extent in the retail business. If you address that, then you don’t need to have the conversation about billionaires. If you don’t attack that, then you need to go to the second best, which is a conversation about the marginal tax above a certain threshold, which will be arbitrary,” says Jakobsen. It is monopolies that are really transforming the world—especially the likes of Amazon and those in the tech world. “The concentration is the issue— markets that trade like a monopoly. A monopoly is legally market share of more than 15 or 25 per cent. More than 60 per cent of markets in the US operate as monopolies or duopolies. Libertarian think tanks say that Amazon is the best libertarian thing in the world ever because it gives cheaper goods, but you could also argue that they use their pricing power as a monopoly, and that monopoly means that the barrier to entry increases or every other business, and even businesses that are providing a local service relative to a global service are put out of business because Amazon has no tax rates and thus can transport as cheap as anyone else. In Tokyo it’s cheaper to get Amazon to deliver than the local convenience store.

How can that be? It’s physically impossible mathematically but that’s the case because of tax breaks and incentive structures,” says Jakobsen. “The world would be a better place if everyone respected monopoly laws. If you have a monopoly structure, either through market share or pricing ability, you are distorting the market price." Many agree that billionaires can have utility in a society from many perspectives—but if they are created in turn with a monopoly, it is the monopoly that needs to be addressed instead.

William Mullally


COVER STORY

A long-term investor Billionaire Ghassan Aboud, entrepreneur, philanthropist and founder of Ghassan Aboud Group, speaks to WEALTH Arabia about his approach to investment in the current climate and giving back to the community

H

ow did your journey towards success begin? The journey began 25 years back in the UAE when I felt the urge to be an entrepreneur after a couple of years in employment. Since I studied journalism, I worked in the media sector for a while as an employee. However, I quickly realised that employment doesn’t excite me and would not help achieve my potential. Sensing the opportunity for export of auto products, I started a small business on my own with limited capital and staff. Back then, Dubai was just beginning to be a hub for trade. I decided to specialise in the trade of vehicles and spare parts. The initial days were difficult, as I had to understand the trade and regulations. Over time our business became quite unique and we managed to develop strong relationships with suppliers and customers. How did the growth story happen? Encouraged by the initial success, I started reinvesting the profits into the

10

business. Over the years, we were able to establish market leadership in this sector and grow into a large conglomerate with offices in the UAE, Belgium, Jordan, Australia and Turkey. Today, our automotive business has a market reach of more than 100 countries. We ship a whole range of products from our automotive hubs in the UAE (JAFZA & KIZAD), Belgium and Jordan. The potential of this platform is tremendous as we are ideal partners to suppliers in the automotive industry to fast track their entry into many markets concurrently. Our products include new passenger vehicles, trucks, equipment, genuine spare parts, lubricants & accessories, etc. As part of our growth strategy we are presenting our credentials to global OEMs seeking entry into the complex markets like Africa, Latin America and others. The other thing we did was to create a diversified portfolio of businesses— hospitality, real estate, retail, food, media, logistics etc. As a major initiative, we established our own hospitality


COVER STORY

wealtharabia.net

11


COVER STORY

12


COVER STORY

brand—the Crystalbrook Collection— with Australia as its headquarters. Today we have an impressive portfolio of hospitality assets and the Crystalbrook Collection has already made its mark in the industry. We have hotels in Cairns and Sydney, with more being developed in Port Douglas and Newcastle. Our logistics company Gallega Global Logistics brings two decades of expertise to the table—backed by extensive infrastructure and other facilities. Supermarket chain Grandiose has collaborated with Intermarche, the French retail giant, to offer a differentiated range of products to consumers in the region.

When a business partner believes you will be with them through the highs and lows, a strong relationship emerges. Ghassan Aboud Founder of Ghassan Aboud Group

What was the best advice you were ever given? To focus on the detail. Even clever ideas could fail if one does not ensure that there is attention to detail in execution. I have picked up on this advice from my early entrepreneurial career and have realised the benefits. The principle I try and follow is to have a constant urge for learning. Learning is always an ongoing process and should never stop. What does it take to be successful in this region? In this region, a lot of business is done based on trust and mutual respect. Developing and sustaining relationships for the long term I think is key for success in this region. Our business has created several such strong relationships. This has resulted in mutually rewarding wealtharabia.net

13


COVER STORY

results and continued success. When a business partner believes you will be with them through the highs and lows, a strong relationship emerges. The other factor is to take advantage of the diverse set of human resources available in the region. People live here from varied nationalities and cultures. This access to diversity can deliver advantages to business.

We firmly believe that the tide will turn and the strongest businesses will stand to gain in the long run. Ghassan Aboud Founder of Ghassan Aboud Group

For investors in the region, where do you see the most growth? Where are the opportunities? Investors in the region have been somewhat subdued given the current economic conditions. However, I feel this is the time to identify opportunities and invest in them. There are some irreversible changes happening in business models, for example digital transformation. Investors who realise the impact on their businesses and quickly tool up their teams will realise the gains in the long term. Entrepreneurs can also capitalise on the advantages the UAE offers as a hub with great infrastructure and market access. With the massive potential of Arab African trade, we are well positioned to create a much wider business platform with UAE headquarters. Therefore, it is just not the regional business, but also the potential of the subcontinent and Africa right from here. How are you personally working to taking advantage of those opportunities? We we have been making investments in the region strengthening some 14

Riley Tower exterior


COVER STORY

Riley Pool

Grandiose Refill Barsha

wealtharabia.net

15


COVER STORY

We have an increased interest nowadays in technologybased business models with what is happening on the digital side. Ghassan Aboud Founder of Ghassan Aboud Group

of our business lines in the region. Our investments are going into food distribution & retail, logistics and expansion of product lines in the automotive sector. We are also exploring some interesting ideas on the digital front. We are being cautious but are not pessimistic. We firmly believe that the tide will turn and the strongest businesses will stand to gain in the long run. The fundamental advantages of Dubai still exist and therefore its status as the hub will never dilute. In the real estate landscape in specific, what do you feel developers need to focus on, and how are you approaching this landscape? On the real estate front, our current focus is on the European market apart from Australia as capital is being deployed as stable/long-term assets. Our projects in the region are completed, as such presently we are not developing any new real estate in the region, except for our own business operations. How much risk on your investments are you willing to accept in the current climate? We are cautious investors and therefore 16

will not indulge in high-risk ventures. Our investments are restricted to the areas of our expertise and experience of the team. We have an increased interest nowadays in technology-based business models with what is happening on the digital side. W hat do you see as the responsibility of UNHWIs to give back to their communities? How do you do this personally? I fir mly believe that social responsibility should be an inherent part of any business operation. It is an important duty of entrepreneurs to give back to the societies from which they generated wealth. Our org anisation is well tuned with this philosophy. I support several humanitarian initiatives, mainly in the area of relief for refugees, through medical, education, vocational and other efforts. I have been very passionate in this area and have always contributed a significant portion of my earnings to serve the underprivileged. And hopefully I will be able to sustain and grow my contributions in this direction in the coming years.


COVER STORY

Ghassan Aboud

wealtharabia.net

17


INVESTMENT

Mean reversion or just rationality?

PHOTO CREDIT: Adam Dodd/Shutterstock

Alain Marckus, Managing Director and Head of Investment Strategy and Investment Management for Personal Banking Group at First Abu Dhabi Bank, writes about the state of the investment landscape nearly halfway through the year

18


INVESTMENT

wealtharabia.net

19


INVESTMENT

I

t had been a long time since global markets had seen a year such as 2018. In fact, the last time cash outperformed most major asset classes as it did last year was in 1994. The then US Federal Reserve Chairman Alan Greenspan had gone into an aggressive ‘normalisation’ of American interest rates. He hiked them six times that year from three per cent to 5.5 per cent. Last year, Jerome Powell’s Fed completed its fourth hike in December, bringing the Fed Funds Target Rate to 2.5 per cent from the 0.25 per cent where it stood three years earlier. The shift to more normal conditions from the unprecedented monetary stimulus the world’s major central banks established after 2009 saw a healthy correction in global markets. This correction was quite pronounced in equities, both in developed and emerging markets. It also pushed corporate bond yields higher, and simultaneously boosted the dollar while depressing commodity prices. What may lie ahead in 2019, we believe, may be a much better scenario for world markets after a torrid ending to 2018, if history is anything to go by. In 1994, the S&P 500 ended the year two per cent down after a volatile ride. The following year, however, the index rose 33.6 per cent. There is good reason to think that 2019 could offer similar stellar returns for some of the riskier asset classes that we think start with emerging markets and high-yield credit. US equities are a good example. Part of the reason why the Fed was so aggressive in hiking interest rates was due to the robust health of the US economy, which grew nearly three per cent in 2018. That was the fastest pace in 14 years. In 2004, when the US expanded 3.8 per cent in real terms, it added some $750 billion to its $11.8 trillion economy in nominal terms. Last year, the country created more than $1 trillion in additional domestic goods and services, twice Poland’s entire GDP in 2017. This year, US nominal growth is likely to be similar, with real GDP expected to grow some 2.3 per cent, a slower pace 20

Alain Marckus, Managing Director and Head of Investment Strategy and Investment Management for Personal Banking Group at First Abu Dhabi Bank

but still far from a recession. At the same time, the Fed is no longer under pressure to normalise interest rates in the way it had done last year, given that US dollar benchmark rates ended 2018 at 2.5 per cent, just shy of the 2.75 per cent that Fed economists themselves see as the socalled neutral level. And yet, US interest rates are still much lower than where they were a couple of decades ago. This comes at an interesting time, when the other two important central banks in the world, namely the European Central Bank (ECB) and the Bank of Japan (BoJ), are still in

the process of rolling back their own monetary stimulus, put in place in similar fashion to the US Fed’s. The BOJ and ECB are still playing ‘catch up’ with the US when it comes to rates. They are however, likely to do so at a much slower pace. This would suggest that some of the monetary tightening pressures that drove losses in markets in 2018 may not be such a big concern this year. With the world’s largest economy, the US, growing at an above-average rate, and monetary tightening under control, there is little reason to believe the negative performance of 2018 will


INVESTMENT

Fed, ECB and BoJ Combined Balance Sheets (US$ trillion) 15 13 11 9 7 5 3 1/1/2008

1/1/2010

1/1/2012

1/1/2014

1/1/2016

Source: FAB; BoJ; ECB; St.Louis Fed

World growth and economic climate 6.5

40

5.5

30

4.5

20

3.5

10 0

2.5

-10

1.5

-20

0.5

-30

-0.5 -1.5

IMF World Real GDP (%YoY) (LHS) IFO World Economic Climate index (RHS)

-40 -50

-2.5 -60 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: FAB, Bloomberg

repeat itself in 2019. On the contrary, some of the most beaten-down assets could very well be outperformers this year. Emerging markets, which are particularly sensitive to the Fed’s policy are perhaps a very good example. China, the largest economy in the emerging world and the world’s second biggest overall, is still growing at a healthy rate that is well above numbers shown by G7 economies. The country expanded 6.5 per cent last year, the slowest pace in nearly 30 years but almost twice the speed of the US. China has been grappling with deleveraging its economy, as well as

the trade war it now finds itself in with the US. Expansion, however, is likely to accelerate this year as the effects of a round of reserve requirement cuts enacted last year by the Chinese central bank, the PBOC, reverberate positively through the economy. The trade dispute with the US is likely to simmer down as we get through 2019 too. Both countries have made significant progress in talks that took place at the end of last year. The crux of the issue remains in place, however, at the time of writing. Yet, we believe that the two sides have agreed to be civil and to minimize the pain that

both have endured as a result of this spat. As we expect the uncertainty to die down, investment is likely to pick up. We believe this looks like the perfect scenario for investing, after the PBOC injected liquidity into the economy in 2018 that will stimulate growth. China remains the bellwether for the rest of the developing world, so if it does well in 2019 it could buoy other emerging markets. Indeed, the country was the biggest contributor to the 17 per cent correction we witnessed in the MSCI Emerging Markets Index for last year. The benchmark CSI 300 Index of stocks traded in Shenzhen and Shanghai dropped 26.3 per cent in dollar terms over the same period. Depressed valuations and an accelerating economy are only two reasons to expect Chinese stocks to perform well this year, and most emerging markets are expected to follow. GEOPOLITICAL UNCERTAINTY – WHERE ARE WE NOW? The global financial crisis of 2008 created extreme market volatility, comparable to the 1930s. A decade later, in 2018, volatility returned with rising interest rates. However, in 2019 we expect less geopolitical risk in the world—and many of the market fluctuations last year were prompted by geopolitical uncertainty, such as Brexit neared its conclusion, nationalist parties rose to power in a number of European economies, and US President Donald Trump, took unexpected measures to push ahead his ‘America First’ agenda. As the saying goes, risk can be hedged, uncertainty cannot. LEVERAGE AND VOLATILITY – THE REVERSAL ARGUMENT While we expect this year to be more promising than last year, we believe it may not be smooth sailing either. Throughout most of last year, we witnessed heightened volatility, unlike what investors had become accustomed to throughout the decade of easy money policies. Almost every asset class in the world experienced large swings later in 2018 and we expect that to not only wealtharabia.net

21


INVESTMENT

continue, but to remain pronounced. While the market’s swoons last year at times seemed dizzying, they were, however, in line with historical volatility for most asset classes. The past 10 years, instead, were the exception, and can be largely attributed to the unprecedented monetary stimulus from the Fed, the ECB and the BoJ. Since the global financial crisis, the adjusted US dollar monetary base increased by more than $3.2 trillion, or five-fold. Interest rates dropped from 5.25 per cent to near-zero in that period while the Fed bought US Treasuries and mortgage-backed securities at an unprecedented rate. The ECB added a similar amount of liquidity while the BoJ printed nearly $4 trillion of new money. Altogether, the three central banks have added nearly $11 trillion of liquidity to the world economy. As these measures have now started to be rolled back, leverage is becoming more expensive for borrowers. Investors have started to adjust their investment mindset as a result. Near-zero interest rates across the globe allowed outsized returns through leverage over the last 10 years. At its low, Libor was at 0.22 per cent. This allowed investors to borrow money almost for

free. The benchmark rate ended 2018 above 2.8 per cent, a sharp rise of 110 basis points in just a year. The higher cost of funding has also reduced the total returns for leveraged investors. High-yielding assets, attractive up until now, are suddenly starting to look less appealing. This was clear in the way emerging market currencies sold off in the first half and goes some way to explaining why other risky assets also performed poorly last year. If the formula of borrowing to invest may not work as well anymore, there still are plenty of gains to be made from harnessing the market volatility to generate higher returns. With this volatility, structured products that use options to mitigate risk on certain assets are offering higher returns versus the open-ended risk that may now come with leverage. Investors should keep things simple. Good returns can be made by taking advantage of market anomalies, and this volatility may sometimes be an opportunity to buy. At least one of the sources of that uncertainty is likely to find a resolution early in 2019: Brexit. This is set to conclude by October, whether it entails a negotiated exit or not. There remains a possibility that the Prime Minister

WTI Crude - historical price movement (US$/barrel) 80

75

70

80

75

OPEC/NOPEC agree to extend output cut agreement

70 15 m

64.93

65

60

Nov 18

Oct 18

Sep 18

Aug 18

Jul 18

Jun 18

May 18

Apr18

Mar18

Feb 18

50 Jan 18

50 Dec 17

55

Nov 17

55

Source: FAB, Bloomberg

22

IMF warns US/China trade war could impact global 60 economic growth

US withdraws from JCPOA

of Britain delays any exit or another referendum is called. We believe these outcomes would face a public backlash and risk triggering early elections in the UK that would create more uncertainty. A second referendum on the issue, for one, risks confirming the previous result again making the UK’s exit from the European Union even messier. However it plays out, by the third quarter we will have more clarity on Brexit. That uncertainty has supported the strength of the dollar, and helped push riskier global assets into bear market territory last year. The key currencies underpinning the dollar index add to the potential appreciation pressure on the greenback. The euro, which represents 58 per cent of the index, and the British pound, responsible for another 12 per cent, have been reacting to political uncertainty derived from Brexit. In the first three quarters of 2018, both these currencies appreciated when there were indications that a constructive agreement could be reached and then dropped when the socalled ‘hard Brexit’ looked more likely. Hence 70 per cent of the direction of the dollar last year was determined in part by the outcome of the UK’s exit from the European Union. As this event moves to the rearview mirror, we expect the euro and the British pound to start showing strength that better reflects these economies. That could mean that the dollar index reverses some of the 4.3 per cent gain from 2018. A weaker dollar would help boost US exports and GDP. It will also reverse some of the falls we have seen in emerging market currencies and commodities. This would be particularly helpful for crude oil. Energy prices were on a rollercoaster last year. Brent crude reached its highest point since 2014 in the first days of October last year, then rapidly dropped more than 35 per cent in the following three months. At the high, Brent was up 29 per cent for the year-todate—it ended down nearly 20 per cent. The stronger dollar was to blame in part, but the main reason for the


China’s Share Of Global GDP

INVESTMENT

%20

%15

%15.26

%15.92

%16.50

%17.07

%17.66

%18.20

%18.72

%19.18

%19.67

%20.12

%20.56

%20.97

%10

%5

%0

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Source: FAB; IMF

savage correction was the change in the market perception of supply and demand for crude. Investors began to worry about oil shortfalls early in the year when the US reintroduced sanctions against Iran. This reduced the availability of crude at a time when Venezuela, home to the world’s largest known reserves, had seen its own production drop to a third of what it was in 2014. OPEC, led by Saudi Arabia, as well as non-OPEC member Russia, responded by boosting production and, along with record oil production in the US, significantly reduced the gap. Then the Trump administration granted Iranian oil waivers to the six biggest importers of the commodity. The damage of higher oil prices, together with the devaluation of the currencies in most of the emerging world (which account for more than half of the world’s oil demand), took a toll on demand too, and ultimately the spectre of oversupply was priced in. OPEC and Russia came to the rescue as they agreed on a 1.2 million barrel cut to production in December. Once more, though, investors carried their bets too far, pushing crude prices

below where fundamentals suggest they should be. We believe this year will be less frantic. After the first quarter, OPEC members will have fully implemented their supply cuts. Shale producers in the US have also begun to reduce output in response to the price drop, and that effect is likely to become evident in inventory levels around the world. We believe the likely shift in sentiment for oil should come just as the dollar peaks. This would help the commodity reach higher levels, and achieve the average $70-$75 price for a barrel of Brent that FAB forecasts this year, slightly above the $72 average logged in 2018 and some 35 per cent higher than the $53.8 at which it traded on 21 December 2018. SUNNY SKIES OVER THE UAE It will not be an airline commercial, but a less hawkish Fed, a weakening dollar, and rising oil all suggest the UAE could have a banner year. Dubai, in particular, could start to feel the economic effects of the impending Expo 2020 exhibition, the largest such event in the Arab World. The Dubai Financial General Market Index was one of the worst-

performing stock gauges in the world last year, down more than 25 per cent for the year to 20 December. One of the Middle East’s most liquid stock markets, it was hit by the impact of rising interest rates (which helped depress property stocks), risk aversion, oil price volatility and recession fears. As a result, Dubai stocks were trading at one of the lowest price-to-earnings multiples since 2011 at the close of last year. The Emirate is also about to see some benefits from an AED 50 billion stimulus package that Abu Dhabi begins to roll out this year, not to mention the potential boost in investor interest ahead of the Expo. US dollar interest rates, which drive their GCC pegged counterparts, are likely to stabilise, which could improve the outlook for property. And oil prices are likely to steady as well. If valuations and economic fundamentals are not enough to convince investors to return to Dubai stocks, mean reversion will. Statistics have shown that particularly bad outcomes are often followed by good ones. And such a difficult year as 2018 could only be followed by a better one. wealtharabia.net

23


INVESTMENT

What can we learn from 200 years of emerging market bond history?

24


INVESTMENT

Alejo Czerwonko, Emerging Markets Strategist at UBS Global Wealth Management, writes exclusively for WEALTH Arabia about the bond world’s huge value

W

e have argued for some time that emerging market (EM) hardcurrency bonds, particularly those issued by sovereigns, have been one of the best performing fixed income asset classes globally over the last 15 years. In past work we showed that the asset class has exhibited an information ratio (annualised returns divided by annualized volatility) of close to one over this time horizon, outperfor ming many comparable developed market fixed income segments in terms of both total and risk-adjusted returns. A fascinating recent paper by The National Bureau of Economic Research titled Sovereign Bonds since Waterloo by Josefin Meyer, Carmen M. Reinhart, and Christoph Trebesch, has taken the historical analysis of the asset class’s performance a whopping 185 years further back. The authors built a time series of monthly prices for 1,400 emerging market foreigncurrency bonds since the battle of Waterloo in 1815, spanning 91 wealtharabia.net

25


INVESTMENT

Asset classes across 200 years: risk and return Panel A: Full sample, 1815–2016 Return, yearly average, real, in %

Returns 8

0.5

Sharpee ratio

0.4

Sharpe Ratio

0.3

6

0.2

Sov. bonds

0.1

4

0.0 2

-0.1 -0.2

0

-0.3 -2

‟Risk-free� gov. bonds (UK/US)

Corporate bonds (US, S&P index, since 1900)

-0.4

UK equities (FTSE)

Sovereign bonds (in USD or GBP, global portfolio)

US equities (S&P 500)

Return (real, yearly average; left axis) Sharpe ratio (excess return/SD; right axis) Source: Sovereign Bonds since Waterloo by Josefin Meyer, Carmen M. Reinhart, Christoph Trebesch, February 2019

countries—a database of more than 200,000 observations. The authors conclude that notwithstanding defaults, wars, and global crises, the average real yearly return on a global portfolio of hardcurrency emerging market sovereign bonds was 6.8 per cent over the entire sample, about four per cent higher than that of ʻrisk-freeʼ benchmark government bonds of the UK or the US. The lion’s share of those returns is explained by coupon payments (70 per cent) rather than by price changes (30 per cent). Such diversified exposure to hard currency emerging market sovereign bonds has shown favourable risk-return properties compared to other assets during in the last 200 years. Only US equities show a higher average return, but these also have a higher standard deviation. In our recent report, “T hinking strategically about emerging markets”, we demonstrated that —in addition to possessing desirable stand-alone 26

risk-retur n properties—USDdenominated bonds in emerging markets have historically added g reat diversification benefits to g lobal portfolios, leading to improved risk-adjusted returns of the overall portfolio.

As painful as many of these credit events have been, the authors argue that investors have been compensated for the risks involved. We have also argued that defaults of EM sovereigns have been a common occurrence in the past, and will almost certainly continue to occur in the future, but that it’s important to separate the individual stories from the asset class as a whole. Interestingly,

The National Bureau of Economic Research’s paper also conducts a census of all distressed sovereign debt restructurings since 1815. Their sample includes a total of 313 external sovereign debt restructurings in the last 200 years. As painful as many of these credit events have been, the authors argue that investors have been compensated for the risks involved. Looking at the behavior of a group of 60 ʻserial defaulters,ʼ they conclude bonds from these issuers provided on aggregate significantly higher returns compared to UK or US government bonds as well as in comparison to emerging market countries that have never defaulted, in addition of course to a higher standard deviation of returns. All in all, we conclude that 200 years of EM bond history support the thesis that emerging market USD-denominated bonds can play an important role in a globally diversified portfolio.


Supported by

Organised by

Providing you with actionable investment advice

SAVE THE DATE 19 November 2019 Armani Hotel Dubai, United Arab Emirates

250+

HNWIs in Attendance

25+

Industry-leading speakers

#WealthArabia

www.wealtharabiasummit.net

FOR MORE INFORMATION,

email us at events@cpifinancial.net or call us on +971 4 365 4538

WAS2019 house ad 21cmx28cm.indd 1

26/03/2019 09:17


PHOTO CREDIT: BlueBoeing/Shutterstock

INVESTMENT

28


INVESTMENT

Caveat emptor William Tohmé, CFA, Regional Head, CFA Institute, Middle East and North Africa writes for WEALTH Arabia about the expatriate community and investment selling in the MENA region

M

any traditional economic models are predicated on the idea of man as a purely rational actor. Homo economicus, so the theory goes, will always seek to maximise gain. However, behavioural economists, and a quick review of one’s own life perhaps, demonstrate that human beings are often far from rational in their decision making. This is the cognitive niche that behavioural finance seeks to explore and understand: why real people, as opposed to abstract financial models of people, make the financial decisions they do. As part of this, behavioural finance examines how biases affect financial planning. Biases operate as a kind of cognitive shortcut: using rules of thumb to make decisions allows people to save both time and effort. However, in the

longer-term, more complex decisions, such as investing, the effects of such shortcuts may be unhelpful. In particular, biases can go awry when transplanted from one environment to another. One powerful example of this can be seen in the investment buying decisions of expats when transplanted from developed markets in which certain investment practices prevail, to a developing market, which has different norms. Some examples of financial behavioural biases: Re p re s e n t a t i o n b i a s : w h e n decisions are based on appearances rather than reality, e.g., the assumption that buying financial advice from a well-spoken, courteous finance professional will automatically be a good investment. wealtharabia.net

29


INVESTMENT

Conservatism bias: The tendency to retain an initial judgement despite new, contradictory information, e.g., investors may be slow to adjust their view of a particular investment even after learning of unfavourable supplementary information. In the wake of numerous scandals, the United Kingdom and other developed nations, have made great strides in cleaning up their investment sales arena. Specifically, in late 2012, the Retail Distribution Review in the UK heralded the end of commissionbased selling of financial products. The minimum threshold qualification was also raised to level 4, which is similar to the first year of a degree. However,

The investor’s chief problem, even his worst enemy, is likely to be himself.

the benchmark that most companies employing financial advisors insist on is level six, e.g., chartered or certified financial planner. As a result of the high level of investor protection at home, many expat investors presume the advice they receive from IFAs to be, at the very least, well informed and not dishonest. Unfortunately, the situation is quite different in Gulf Cooperation Council (GCC) countries, where sales and distribution structures that often implicitly incentivise advisers to put their interests before clients’, still flourish. The problems this attitude creates primarily impact the expat community: young, affluent and without any state-sponsored welfare safety net in case things go awry, expats tend to be keen savers. Unfortunately, rather 30

William Tohmé, CFA, Regional Head, CFA Institute, Middle East and North Africa


INVESTMENT

than saving toward their plans, such as retirement, a deposit or their children’s education, many have found themselves the victims of financial fraud. Now that the UAE is about to become more attractive to a different kind of expat—wealthy retirees—the need to clean up and regulate the region’s investment selling practices is greater than ever. New immigration rules, which come into force this year, will give expatriates aged 55+ the opportunity to opt for a renewable five- or ten-year visa provided they meet the wealth threshold, AED 213,000 in savings, an AED 400,000 cash investment in local property or an income of more than AED 5000 a month. Previously, only foreigners with jobs were eligible for visas. Pensions and insurance selling— the UAE requires mandatory private health insurance for all expats—are two areas of particular concern. Financial advisers in the GCC often sell investments attached, tenuously, to an insurance product, as in many countries, insurance requires fewer qualifications to sell. In the UK, this type of product is known as a maximum investment plan: a regular, long-term (10 years plus) premium savings plan, which includes life assurance. The products, which had a history of mis-selling, were effectively killed off by the UK government in 2013 following a GBP 3,600 cap on annual contributions. Complexity is a hallmark of these kinds of products, as are hidden fees, poorly performing assets, contractual payment plans and hard sales pitches fronting as impartial, professional advice. By the time an investor realises their mistake, it is often too late, as contracts have extended lock-up periods, sometimes up to 25 years, and punitive exit fees. Although some countries in the region, notably Qatar and the UAE, have made tentative efforts to address mis-selling by introducing new insurance regulations, many regional regulators have been slow to monitor the IFA market. This is because the products IFAs sell are rarely purchased by GCC

nationals, who benefit from generous cradle to grave welfare provision. As a result, even everyday investment products, such as insurance, have very low penetration rates: according to the rating agency, Standard & Poor’s, the average insurance penetration across the GCC countries stood at around 2.3 per cent in 2017, well below the global average of 6.2 per cent. The CFA Institute has called for universal disclosure of fees across the globe to raise levels of investor trust. According to our Next Generation of Trust survey, globally, 84 per cent of investors say their trust in the system is mostly driven by full disclosure with less than half satisfied. Additionally, in every

leadership and advocacy on behalf of the end investor. Until that happens, given the lack of regulatory oversight and redress, perhaps the most prudent course of action expats can take is to bear in mind the words of legendary investor Benjamin Graham: “The investor’s chief problem, even his worst enemy, is likely to be himself.” Although Graham made his comments long before the dawn of behavioural finance, his insight bears testament to a fundamental human trait at the heart of behavioural economics: we often think with our heart rather than our head. However, being aware of our behavioural biases is a powerful first step in overcoming them. Therefore,

Expats can also help to overcome the effects of their biases by seeking out the advice of an independent financial advisor who is willing to work on a fee-only, non-product contingent basis.

market, a majority of retail investors agreed they would trust their adviser more if the investment staff performed continuous professional development. Eighty per cent in the UAE agreed. Unfortunately, in many offshore jurisdictions, including the UAE, there is little requirement for remuneration disclosure and no minimum professional qualification required to sell investment products. Additionally, 31 per cent of respondents from the UAE said that their investment firm ‘always’ put client interests first, followed by 44 per cent who responded with ‘usually’. There is still work to do for the remaining 21 per cent. It is here that we have a vital role to play in the development of the region’s capital markets via the dissemination and normalisation of the highest industry standards, ethical

when investing, we would do well to reassess our investment decisions on a periodic basis (confirmation bias) and remember that looks can be deceiving (representation bias). Expats can also help to overcome the effects of their biases by seeking out the advice of an independent financial advisor who is willing to work on a fee-only, non-product contingent basis. As part of your due diligence ensure that the IFA has professional indemnity insurance and adequate professional qualifications, read all documentation carefully prior to signing and do not be afraid to ask questions. And, finally, if your advisor cannot explain to you in clear, simple language how a policy works, be wary of proceeding. Information asymmetry is always a warning sign. wealtharabia.net

31


INVESTMENT

32


INVESTMENT

Evolving alongside clients Vipul Kapur, Head of Private Banking, Mashreq sheds light on the shifts in trends and the changing nature of customer demands in the UNHW universe

wealtharabia.net

33


INVESTMENT

W

hat is your view on the development of the private banking sector in the UAE? UAE is a safe heaven and a growing f i n a n c i a l h u b, a f t e r U K a n d Switzerland. Ultra-high net worth (UHNW) individuals internationally and regionally are moving to the UAE to make it their base especially on the business front. Key challenges have been on the regulatory side, which have developed tremendously over the last decade. This is evident with the growth of offshore platforms within the UAE such as the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM). The onshore regulatory authority and SCA (Securities and Commodities Authority) have also had tremendous success in attracting number of inter national asset management companies to promote fund management business further supporting the private banking sector. How has Mashreq contributed to this growth? Mashreq is a one-stop shop with multiple products and best-in-class platform. Our strength includes equipping our client base by providing them access to international financial markets whilst assisting them navigate through many business cycles. Our highly experienced team of investment advisors and FX specialists carry out an in-depth analysis of our clients’ needs to help them design their investment portfolios in the most suitable manner. This is done across all assets classes including local and international equities, bonds, third-party funds, inhouse model portfolios, property and wealth lending. How have client demands changed since the inception of Mashreq Private Banking? Client demands have become more sophisticated globally with a focus on long-term planning revolving around inheritance and taxation issues. We are 34

Vipul Kapur

now able to meet our client demands in the most bespoke manner treating each as per their risk profile, investment objectives and time horizon. The core of our offering continues to be based on the importance of investment diversification to provide sustainable long-term growth.

Client demands have become more sophisticated globally with a focus on long term planning revolving around inheritance and taxation issues. What future trends do you foresee developing in this space? Legacy planning and transfer of wealth to the next generation especially by the ultra high net worth and family offices is the space we see developing rapidly over the next few years. In addition, there is

an increase in investment requirement by female investors who have historically relied on the family but with time wish to make more independent decisions with the assistance of professional advisors. We also foresee technological developments such as providing roboadvisory wealth management services to the clients. More and more clients are moving into bespoke portfolio solutions diversifying across the full range of traditional and alternative investments. Operating in challenging conditions, what opportunities do you see for this market? The global business and the local regulatory environment continues to evolve, and we keep ourselves abreast of the latest news and developments ensuring the clients’ portfolios are proactively discussed for rebalancing opportunities. We see huge opportunities in further strengthening our relationships and bespoke investment services to our client-base.


Supported by

9–10 September 2019 Dubai, United Arab Emirates Financial Regulation Technology Summit presents an exclusive opportunity for the Middle East banking industry to bring the focus back to business by creating a more proactive and effective compliance approach. The Summit will host senior leaders from banking and financial institutions, regulators, government authorities, solution providers, and experts in risk, compliance and technology from across different regions to discuss solutions to major challenges in adapting to the pace and complexities of regulation compliance.

Raja Al Mazrouei

Executive Vice President FinTech Hive at DIFC

Sam Gibbins

Managing Director Complilearn

Sopnendu Mohanty

Chief Fintech Officer Monetary Authority of Singapore

Nagendra Shivaraya

Managing Director, Head of Compliance, UAE Standard Chartered

Dr. Mohamed Damak

Senior Director & Global Head of Islamic Finance, Financial Services Research S&P Global Ratings

Nishant Nottath

Regional and Global Head of Transaction Monitoring - FCC HSBC

Nipun Srivastava Director Deloitte

Muhammad Babar

Head of Digital Compliance MoneyGram International

Conference Topics: � Regulatory Compliance Transformation � Risk Management � Cyber Security � Financial Forensics � Monitoring / Surveillance � Regulatory Reporting � Fraud Prevention

Developed by

Consulting Sponsor

Exhibitor

For speaking and other enquiries, contact us at events@cpifinancial.net or call us on +971 (0)55 5974599


INVESTMENT

Japan’s strengthening fundamentals are going unnoticed

PHOTO CREDIT: Blue Planet Studio/Shutterstock

Alex Lee, Portfolio Manager, Equities, Columbia Threadneedle, writes about the Japanese market’s subtle value for investors

36


INVESTMENT

G

lobal investors underappreciate the changing behaviour of Ja p a n e s e c o m p a n i e s, which has made them more resilient and well positioned to benefit from global reflation. Sentiment among foreign investors on the Japanese equity market is extremely negative—during 2018, net sales of Japanese equities by foreign investors hit their highest level since 1987, the year of the infamous Black Monday crash. This has happened despite signs of an increasingly resilient domestic economy and changes in corporate behaviour that have pushed profit margins towards historically high levels. The main reason for investor caution is the widespread view that Japan is very tightly geared to the global economic cycle: signs of slowing global growth therefore call the Japanese equity story into serious question. It is undoubtedly true that Japan remains a cyclical market and its recent performance and near-term outlook are very dependent on the external environment. However, this view fails to take into account the extent of the changes that have taken place within the Japanese economy and the mindset of companies and consumers, which suggest that over time the country is becoming somewhat less geared to the global cycle. This is not sufficient to free Japan entirely from wider cyclical influences, but it is contributing to a more resilient outlook for Japanese companies and setting up the potential for strong earnings growth when the global backdrop improves. JA PA N H A S E S C A P E D T H E DEFLATIONARY DOLDRUMS After two decades of entrenched deflation, the country has returned to nominal gross domestic product growth (Figure 1). A key change has been the GDP deflator, which had been consistently negative since the mid-1990s but has turned positive in recent years. This is partly a cyclical

effect, reflecting an easing of global deflationary pressures and faster international growth. However, major changes have also been taking place domestically. For many years, against the backdrop of deflation and a weak economy, price rises in Japan were seen as socially unacceptable. Indeed, in 2016 dessert company Akagi Nyuguyo famously ran a TV advert apologising to customers for raising its prices for the first time in 25 years. So in 2017 when high profile parcel delivery company Yamato Holdings raised its prices for the first time in 27 years, the move was unsurprisingly controversial. However, against a backdrop of strong demand and a shortage of drivers, Yamato explained it could no longer offer world-leading delivery service at rock bottom prices if it was to pay its workers fairly and make money. Now the company says its customers’ outlook has changed: the deflationary mindset that said prices could never go up has been replaced by an acceptance that inflation is sometimes appropriate. Companies at last feel able to raise prices to reflect the quality of their goods and services without apologising to customers. These increases help to protect their margins and underpin an improving trend in profitability. Japan’s ageing and shrinking population will, however, continue to be a headwind to strong rises in inflation. As a result, the return to a more inflationary environment will be gradual and modest. Inflationary pressure will remain cyclical and we don’t expect to see the Bank of Japan’s two per cent inflation target hit in the foreseeable future. However, the break away from deflation alone is very important and encouraging. H OW T H E C O U N T RY IS NEGOTIATING ITS DEMOGRAPHIC SQUEEZE Japan’s ageing population is well documented. The labour market is already extremely tight, and this situation will only become more wealtharabia.net

37


INVESTMENT

extreme as the size of the working age population continues to decline. This is a significant headwind for economic growth. But Japan has been waking up to the fact that it is beginning to run out of workers and has started to react to the situation. T h e c o u n t r y h a s b e e n ve r y successful in attracting people who were previously inactive into the workforce, particularly women and older people. Labour force participation continues to increase rapidly and at 61.4 per cent at the end of 2018 is fast catching up with the US on 63.2 per cent (Figure 2). Among women, Japanese labour participation is already higher than in the US, supported by government policies specifically designed to increase the female participation ratio, coined ʻWomenomics’. There are also signs that Japan’s traditionally tentative attitudes to immigration and foreign workers are changing. The Government’s tourism initiatives are a key indicator of this. In 2008, Japan set a seemingly ambitious target to attract 20 million inbound foreign tourists a year by 2020. The target was achieved five years early, and the Government subsequently doubled the target to 40 million visitors by 2020 and 60 million by 2030. Tourism represents not only a welcome source of imported consumer demand, but also increases Japanese society’s exposure to foreign influences. The Government is now starting to reform the country’s immigration rules: recent moves have made obtaining visas easier and allowed foreign workers to bring their families with them to Japan under certain circumstances. These trends are in their early stages; foreign workers currently only make up two per cent of the total labour force. However, in 2017 foreigners accounted for 30 per cent of the growth in the number of workers in Japan. The importance of these first steps towards a society more accepting of immigration should not be underestimated; it could be a very important factor in Japan’s future economic performance. 38

Figure 1: Japan’s nominal GDP (trillion yen) 560 550 540 530 520 510 500 490 480 470 460 450 Mar-95

Dec-99

Sep-04

Jun-09

Mar-14

Dec-18

Source: Cabinet Office

Despite these positive steps, we cannot expect growth in the labour force to drive economic growth going forward, given Japan’s demographics, even if immigration does more to offset the impact of the shrinking working age population. Productivity will become the

Japan is better positioned now than it has been during previous slowdowns – but this is not reflected in equity valuations because investors are ignoring the bottom-up changes that companies have been making. key factor in determining the country’s ability to grow its economy. Here, the picture to date is mixed. The parts of the economy most exposed to global competition, notably manufacturing, have achieved very strong productivity growth since the global financial crisis (GFC), enabling the sector to remain globally competitive. By contrast, in domestically focused, non-manufacturing sectors which are

not exposed to global competition, productivity growth has fallen well behind other major economies. It is in the domestic, service-based economy that we expect to see the biggest productivity gains in future, as labour shortages and cost inflation forces companies to focus on becoming more efficient to survive. C O R P O R AT E JA PA N H A S CHANGED ITS WAYS Faced with rising costs and the challenge of a labour market in which unemployment has all but disappeared, Japanese companies have responded with some welcome changes in behaviour. Traditionally, they have tended to invest heavily when the economy is expanding, leading to damaging over-investment at the top of the cycle followed by a collapse in profitability and a jump in writeoffs when growth rolls over. Now, however, we are seeing companies take a much more considered approach—in part because they are struggling to secure the labour required to expand. As a result, their investment is increasingly focused on efficiency rather than capacity growth. Companies are prioritising profitability over inappropriate sales expansion. This more efficient allocation of capital helps to protect margins and underpins prices. The move away from strongly pro-cyclical patterns of investment is


INVESTMENT

Labour force participation continues to rise 68 66 64 62 60 58 56 54 Dec-01

Mar-06

Jun-10 Japan

Sep-14

Dec-18

US

Source: Bloomberg, February 2019.

significant because it will help make the corporate sector more resilient during economic downturns, and therefore less strongly geared to the global economic cycle. We see evidence for this change in approach in the sharply lower ratio of Japanese companies with negative net income and the very large fall in the number of corporate subsidiaries that are loss-making. We appreciate that these trends are partly cyclical in nature. However, we also view these shifts as evidence that companies are starting to specialise in areas where they are strongest and allocating labour where it will generate the highest returns. EARNINGS AND MARGINS CLIMB Corporate margins are rising and Japanese profitability is at an alltime high. This is in part due to the aforementioned changes in corporate behaviour. It is also partly the result of several years of painful restructuring following the GFC, as a strong yen and low-cost competition from China forced Japanese companies to move up the quality chain and exit low-value-add businesses. Once Abenomics began to weaken the currency, Japanese earnings rose very strongly. The current weaker period of global growth has reinforced analysts’ persistent caution about Japanese equities, due to their cyclical exposure.

But we believe the reforms outlined above have made the Japanese corporate sector much more resilient: during the Chinese slowdown in 201516, Japanese profitability fell only modestly where in the past it could have been expected to collapse. There is no doubt that Japan is still geared to the global cycle, but we believe the evidence is that this effect is not as pronounced on the downside as it once was, in part because Japanese companies have learned the painful lessons of their traditional bias towards strongly pro-cyclical investment patterns. In short, Japan is better positioned now than it has been during previous slowdowns – but this is not reflected in equity valuations because investors are ignoring the bottom-up changes that companies have been making. VALUATIONS ARE BACK ON THE FLOOR Despite the changes we’ve outlined, at the end of 2018 the Japanese market returned to its historic lows in terms of price/earnings (PE) ratios, at about 12x. Heavy selling by foreign investors demonstrated their lack of faith in the improvements that have taken place over the past few years. Comparing Japan to other markets, during the 1990s the Japanese market traded at a significant valuation premium to the rest of the world. But

the market derated significantly and by 2012 it had given up this premium. Since then, while other major markets have seen their valuation multiples rise, that of Japan has continued to fall despite strong corporate earnings growth. Against this backdrop, we believe Japan is attractively valued. The market’s derating means that in the future, once earnings start to rise again, Japanese equities no longer have to battle a long-term derating trend and stock prices can rise proportionally. As global cyclical headwinds dissipate, we feel the backdrop of low market valuations and a stronger corporate sector will set the market up for strong gains. POISED TO BENEFIT FROM GLOBAL REFLATION Japan suffered badly in the deflationary bust that followed the collapse of Leman Brothers. Fierce competition from China and a strengthening yen forced its companies to restructure and exit low-value-add activities. This has worked. Since 2013-14, Japan’s share of world exports has stabilised. Despite domestic structural issues, Japanese manufacturers have become more internationally competitive and have focused on high-value-add production to a greater extent. Moreover, the behaviour of domestic Japanese companies is also changing. Its service sector has struggled with very low productivity for many years as deflation encouraged them to overinvest in staff. Labour shortages and rising prices are now changing the way these companies do business. They are focusing more on efficiency and productivity and margins are gradually rising. However, international investors are ignoring the big advances that corporate Japan has made over recent years and valuations have fallen back to longterm lows. Although there is short-term uncertainty while the global economy moves through a period of slow growth, we believe Japanese equities are very attractively priced and poised to benefit more than investors realise from a pickup in global activity. wealtharabia.net

39


DIFC_IFCampaign_WealthArabia_420x280mm.pdf

1

5/6/19

11:49 AM


DIFC THE BEST OF BOTH WORLDS

IF ONLY there was a place where finance and culture existed seamlessly. IF ONLY there was a place that was the key to emerging markets. Where FinTech companies, venture capital firms and accelerator programmes thrive. IF ONLY there was a place that was internationally recognised and independently regulated. IF ONLY there was an established leading financial centre for the Middle East, Africa and South Asia. Where nearly 24,000 professionals and 2,100 of the world’s top companies work and live. There is. DIFC.

For more information difc.ae @difc


ADVERTORIAL

Advertorial

J E R S E Y

L O N D O N

D U B A I

M U M B A I

H O N G

Supporting a Better Future for International

Employees in the Gulf Region Having been working with countries across the Gulf for many years and with a presence in the UAE since 2011, Jersey has established itself as a leading jurisdiction for private wealth management, supporting the increasingly sophisticated international wealth and succession planning strategies for families in the region. That leading position was underlined last year when Jersey became the first International Finance Centre (IFC) to open an office in the Dubai International Finance Centre (DIFC), and there’s no doubt that investors in the Gulf continue to find genuine appeal in the expertise, substance and stability offered by Jersey’s award winning IFC. This year Jersey is looking to build on its reputation as a forward-thinking IFC in a number of new diverse areas – including supporting the long-term savings needs of international employees working for firms in the region.

Key features of an ISP Its sole purpose is to provide benefits in respect of a person’s employment, wholly outside Jersey

It has trustees (either two or more individuals or a corporate) who are regulated by the Jersey Financial Services Commission (JFSC – Jersey’s financial services regulator)

It is established under an irrevocable trust under Jersey Law by an employer who is not resident in Jersey

It is not a scheme which comes within the pensions framework under Jersey tax legislation

For more information, please contact a member of the Jersey Finance team on: +44 (0) 1534 836000

jersey@jerseyfinance.je

www.linkedin.com/company/jersey-finance

46

www.jerseyfinance.je

www.youtube.com/jerseyfinance

@jerseyfinance

K O N G

S H A N G H A I


ADVERTORIAL

Advertorial

The need for such solutions has been brought sharply into focus in recent times. A recent study by Old Mutual International and Quilter Cheviot found that nearly 60% of UAE workers will depend on gratuity payments to partly or fully fund their retirement, whilst a report last year from Willis Towers Watson found that only 20% of firms in the Gulf offer a retirement or long-term savings plans for their employees.

ISPs for end of service benefits Further, it is envisaged that there will be growing interest from the Gulf region with the provision of schemes such as international savings plans (ISPs) anticipated to become mandatory for end of service benefit payments in the future. Jersey’s response is the new innovative International Savings Plan (ISP) product, introduced in January this year designed to enable large multinational companies to set up savings plans in Jersey for their non-resident employees.

They can be tailored to meet the needs of employer and employee and are more flexible. They allow a pay-out to employees before the normal minimum pension age, either on termination of employment or on the occurrence of a major life changing event, such as redundancy, divorce, or children going to university.

Jersey – over 50 years of experience Having been at the forefront of global finance for over 50 years and with more than 13,200 professionally-qualified, expert finance industry employees, Jersey is ready to support the needs of multinational companies looking to set up ISPs for their employees to provide them with a better platform for their future savings needs.

By Richard Nunn Head of Business Development - Eastern Markets, Jersey Finance richard.nunn@jerseyfinance.je

Whilst savings plans are not new, it’s increasingly clear that international employers are looking to establish them in reputable well-regulated jurisdictions. Selecting an IFC that has the proven expertise, a robust regulatory framework and political and economic stability is vital - and Jersey is ideally placed to meet those requirements.

Jersey tax authority approved Approved by the Jersey tax authorities, the Jersey ISP differs from traditional pensions offered to employees. Acknowledging that employees today are likely to work for several employers in their careers, for instance, the ISP has been designed to ensure employees have access to savings when they need it most.

Why Jersey for ISPs? Expertise

Substance

Tax-Approved

Jersey has one of the largest number of finance industry professionals of any IFC, giving it a vast pool of expertise

A modern business environment with more than 13,200 professionals supported by a politically stable government

The Jersey tax authority approves Jersey ISPs

Connected Jersey has strong links and is in close proximity to the City of London and the EU, giving businesses and individuals easy access to both markets

Reputable It adheres to, and is often an early adopter of, global standards set by the UK, EU, US and the Organisation for Economic Cooperation and Development (OECD)

UK

Choice In over five decades, Jersey has developed a breadth and depth of competitive products and services

JERSEY

Central It has a central time zone,making it easy to do business around the globe

FRANCE

wealtharabia.net

47


MOTORING

From Hamburg to the coast

WEALTH Arabia takes the new Porsche Macan across cities and villages in northern Europe to find the car is one of Porsche’s best ever

44


MOTORING

W

EALTH Arabia is in Hamburg, Germany with the 2019 Porsche Macan. Our plan is to drive the new model across the German countryside, all the way up to the northern coast, to a small port town to the east of Denmark we couldn’t pronounce correctly if we tried. We’re to see exactly what the latest model can do, and how well it handles all that this landscape can throw at it.

Hamburg itself is Europe’s third largest port city, connected to the river Elbe all the way up to the North Sea. Renowned for its media, entertainment. science and education, the city has a peaceful ambiance, with the warm lights of the buildings beautiful to watch reflect along the river’s surface. We’re driving in the other direction, and as soon as we take the Macan out of the city, we reach Germany’s beautiful countryside, with small villages spread

wealtharabia.net

45


MOTORING

out between long stretches of farm and open fields lined with tall trees. There’s a tranquility to it, which makes the Macan the right car for the ride, as though it maintains the sporty heart that the model has always had, it has come forward in terms of design, comfort and connectivity, making it a car both for long stretches of empty road and the small town day to day. Getting behind the wheel, we immediately notice the upgrade. A new 10.9-inch touchscreen (previously 7.2) of the new Porsche Communication Management (PCM) is the centrepiece, eye-catching and supremely functional, which also gives access to new digital functions such as intelligent voice control, which can control music and 46

In the S model, there’s a new engine—a new 3.0-liter turbocharged V6. It uses a single twinscroll turbocharger located centrally within the ‘inner V’ of the engine, which has a power output of 348 hp from 5,400 to 6,400 RPM and 354 lb.-ft. of torque between 1,340 and 4,800 RPM.


MOTORING

wealtharabia.net

47


MOTORING

vehicle functions as well as navigation, and the standard online navigation. Apple Carplay is also optional, but anyone with an iPhone should consider it essential. That phone will be put to good use too—the Porsche Connect app and Porsche Car Connect app enable the driver to communicate with the Macan via their smartphone. The Offroad Precision app, which premiered with the 2019 Porsche Cayenne, is now also available with the Macan. Along the side of the interior, newly arranged and designed air vents and the optional GT Sport steering wheel have been added, details that can also be found in the 911. The range of comfort equipment is extended by a new Traffic Jam Assist feature, which serves as an extension of Adaptive Cruise Control— another reason the latest Macan is built for every day life. Two other options are available, one you might not need in the Middle East but one that you shouldn’t hesitate to get: a heated windshield and an ioniser for enhanced cabin air filtration. In the S model, there’s a new engine—a new 3.0-liter turbocharged V6. It uses a single twin-scroll turbocharger located centrally within the ‘inner V’ of the engine, which has a power output of 348 hp from 5,400 to 6,400 RPM and 354 lb.-ft. of torque between 1,340 and 4,800 RPM. Porsche first implemented this engine in the Panamera and then in the Cayenne shortly after. The short exhaust gas paths between the combustion chambers and the turbocharger ensure strong and immediate responsiveness, providing peak torque earlier in the rev range than the engine in the previous Macan S. In addition reducing weight and using fewer components, this design allows the exhaust manifold to be integrated into the cooling circuit, which increases efficiency at high loads. How does the car handle? It’s just as stable as previous models, but the chassis has been revamped, giving it a more neutral response and making the drive overall more comfortable. The driving dynamics of the Macan remains its core feature. The new Macan again features staggered tires, 48


MOTORING

wealtharabia.net

49


MOTORING

50


MOTORING

which is unusual for the segment and helps you exploit the driving dynamics advantages of the intelligent PTM all-wheel drive. The tires, however, have been redesigned with improved performance characteristics, which also permit improved lateral dynamics. The brakes, as well, have been overhauled and improved. The pedal feel is a lot stronger—an organic sheet pedal made of molded, fiberglassreinforced thermoplastic sheet material with a back-injected plastic rib structure replaces the previous equipment. Because of this, the pedal weighs around 300g less than the previous steel part and connects to the brake master cylinder via a shortened lever arm, making it more responsive and the driver feels a precise pressure point through the very rigid connection. How does Traffic Jam Assist work? Well, first, it extends the stop-and-go function by steering assistance. It makes use of optimised radar and video sensor systems, detecting lane markings and vehicles driving ahead in the same lane or adjacent lane in a speed range from zero to 65 kph. When the system is active, the vehicle can be kept in lane by targeted steering interventions. When in a traffic jam or slow-moving traffic, this leads to a considerable reduction in the strain on the driver and significantly increased comfort. The reduced stopping distance function is part of the adaptive cruise control system and thus also of Traffic Jam Assist. This function provides multi-level warnings and braking interventions if there is a risk of collision with pedestrians or vehicles. Other assistance systems for lane keeping and lane changes as well as speed limit display are also still optionally available. We make the drive to the coast of Germany, and back to Hamburg over a few days, and through it all, it was hard to imagine another car that would have improved the experience, or another Porsche model that was superior. The 2019 Porsche Macan might be the best city to countryside car we’re driven this year—an excellent and welcome upgrade that pushes the Macan to the forefront. wealtharabia.net

51


FOOD

Beck at Brown's Autumn scallops

Like grandmother used to make 52


FOOD

Heinz Beck and Hero De Agostinis speak to WEALTH Arabia about Beck at Brown’s, their newest Italian restaurant located in Mayfair, London inside the sumptuous Brown’s Hotel

H

einz Beck may be Germanborn, but there are few more influential and highly respected Italian chefs in the world. His signature restaurant, La Pergola, sitting atop a picturesque hill in Rome, is one of only 10 three Michelinstarred restaurants in the whole of Italy, and likely its most famous. Heinz began his career at the Professional School in Passau, Bavaria before cutting his teeth in some of Europe’s finest kitchen, including the three Michelin-starred Tantris in Munich. He quickly moved on. In 1991, Beck accepted the position of Sous Chef at Residenz Heinz Winkler in Aschau. After honing his skills at Residenz, Heinz moved to Rome in 1994 to La Pergola where he was awarded his three Michelin stars. In 2000, he was honoured with the ‘Golden Medal of the Artists Foyer’ from La Sapienza Rome University. Though he’s now looked after La Pergola for 25 years when he became its executive chef, he has since expanded his reach across Europe. Recently, he opened another Italian restaurant, this time in London—it’s called Beck at Brown’s, located at the Brown’s hotel in Mayfair. Putting his own name in the title makes it hard to separate the restaurant from the man himself. Beck tells WEALTH Arabia that was the intention.

“For me, it provides a stamp of authenticity and sincerity. I feel extremely proud to be a part of Brown’s iconic heritage and believe the name ‘Beck’ provides a sense of confidence to guests, ensuring they will receive consistent unrivalled service and exquisite food,” says Beck. T h e p h i l o s o p hy b e h i n d t h e restaurant is to take some of the DNA of La Pergola and put it in a more contemporary, relaxed setting—the type of place one can go for a nice occasion, rather than a once in a lifetime visit booked months in advance. “Beck at Brown’s is a perfect combination of causal dining and fine Italian fare. The restaurant provides the freshest and most seasonal dishes which are accessible to all and to be enjoyed in the most iconic and fashionable spot in Mayfair of course!” says Beck. If readers are wondering what exactly Beck has taken from La Pergola, and you’re hoping that we say ‘pasta’—you’re in luck. For Beck, pasta will always be the most comforting and essential dish in the Italian kitchen. “The most enjoyable dish to cook for others has and always will be homemade pasta. Pasta enables you to be creative, incorporating both classic and innovative recipe,” says Beck. To look after Beck at Brown’s on the ground, Beck turned to one of his oldest collaborators—Heros De Agostinas. In wealtharabia.net

53


FOOD

1995, just one year after Beck joined La Pergola, Heros De Agostinis began his culinary career in La Pergola’s kitchen. It is not just Beck that he has collaborated with since—from then on, Heros continued to develop a portfolio of experience at some of the world’s top Michelin-starred restaurants, working alongside three Michelin-starred chefs such as Heinz Winkler and Marc Veyrat. In 1999, he took on the role of demichef de partie at three-starred Residenz Heinz Winkler, in Ashau, Germany. He then went on to work with luxury resorts group Kempinski for key restaurant openings Indonesia and Slovenia.

My first memories as a child was in my Grandmother’s kitchen tasting flavours and spices of North Africa. Hero De Agostinis

It was in 2009 that Heros returned to La Pergola and Beck’s side, spending three years as Beck’s right-hand man. In 2012, Heros moved to London becoming Executive Chef at Apsleys, earning one Michelin star before it closed in 2015, then going on to be Executive Chef at Heinz Beck’s newest opening, Beck at Brown’s in Mayfair. Beck’s career may have begun with Beck, but his culinary journey began much earlier. “My first memories as a child was in my grandmother’s kitchen tasting flavours and spices of North Africa. The ingredients, flavours and smells captivated my imagination. My passion for food evolved from seeing how she enjoyed cooking for the family whilst making everyone feel at ease… it was a very happy place to be,” De Agostinis tells WEALTH Arabia. “I decided to become a chef at the age of 12 years old. From my early years 54


FOOD

Heinz Beck and Heros de Agostinis at Brown's Hotel

wealtharabia.net

55


FOOD

Beck at Brown's Fagotelli

56


FOOD

I found myself in a kitchen or a Roman market looking for new ingredients, discovering new flavours, always seeking out and enjoying different dishes.” Working in countries outside of Italy has helped expand De Agostinis’ cooking philosophy. “My philosophy is to focus on seasonal produce and ensure every dish looks beautiful, colourful and tasty. I also try to serve food which is healthy. My knowledge and experience has grown through my joy of travelling, I have been fortunate to work in many countries, which has opened my mind to different cultures and approaches to food,” he says. What did he learn from Heinz Beck? “Wow, where do I start! I was young, excited and eager to learn when I first met Chef Heinz Beck. He has not only been a mentor but also a prominent figure in my life. To work with Heinz Beck for nearly 20 years at La Pergola was the best life lesson. The key thing which I have always appreciated is what Chef Chef Heinz Beck and my grandmother had in common—never accept second best; smile and most importantly love your work as much as life,” says De Agostinis. At La Pergola, De Agostinis learned that meticulously looking after the food was just as important as how you treat the customer. “The attention to detail; making guests happy and comfortable from the minute they walk in; and creating a welcoming environment where you feel like you are with friends and family,” De Agostinis highlights about La Pergola. The world of haute cuisine has evolved in recent decades, making borders less defined and distances seemingly shorter. “In the last 20 years the world has got a lot smaller, where various cultures and flavours have intermingled. You no longer have to travel far to experience different cuisines and restaurants, everything is so much more global. You don’t need to have a restaurant next to the Coliseum to have great Italian food, you can have a great Italian restaurant in a suburb of London,” says De Agostinis. wealtharabia.net

57


PHOTO CREDIT: Andy Haslam

FOOD

The Kipling suite bedroom at Brown's Hotel

58

De Agostinis and Beck approach the menu to Beck at Brown’s “like Vivaldi, focusing on the four seasons,” and the restaurant’s design “reflects the different colours and cultures from around the world, with a nod to its British heritage,” says De Agostinis, though it is still very much an Italian restaurant. While Beck loves his pasta, De Agostinis has a different favorite dish to cook. “Risotto with scallops, caraway seeds and pickled cucumber,” he says. The response to the restaurant has been positive thus far. “I think our guests really appreciate our use of unique flavours whilst providing a comforting, homely appeal to our dishes,” says De Agostinis. In the future, while De Agostinis is enjoying his journey at Brown’s, he would like to try something that is both innovative and a call back to a his grandmother’s kitchen. “I’d love to open a restaurant without a menu and without any choices of dishes. I would serve unique cuisine focusing on the best ingredients from the markets available on that day.” After WEALTH Arabia made the journey from Dubai to the new restaurant, we can affirm that it is exactly what Beck and De Agostinis promised. It certainly created the warm, friendly atmosphere, full of laughs and shouts of ‘oh you have to try this!’ that the best restaurants do, while also transporting the quality of La Pergola, with its unforgettable pastas, beverages and combinations of tastes and textures. While La Pergola might be a once in a lifetime experience, WEALTH Arabia will certainly be going back to Beck at Brown’s soon. We also wholly recommend you stay at Brown’s as well—it is perhaps the best hotel we’ve stayed at in London. It is as lovingly crafted as you could hope, each suite named and individually designed, complete with hardwood floors, and a classic and modern mix of design by Olga Polizzi, the sister of Sir Rocco Forte himself. The 115 rooms and 33 suites are full of wonderful details and accoutrements—it will be hard to leave.


Backed by 170 Years of Excellence

THEY’LL GROW INTO THEIR BEST SELF With a legacy of over 170 years, England’s Independent School of the Year is now in Dubai to deliver a forward-thinking approach to education. By combining academic excellence and innovative teaching methods with a wide range of co-curricular pursuits, Brighton College Dubai nurtures your children to be the best version of themselves. Enrol your child for September 2019.

Call 800 BRIGHT (274448) or visitbrightoncollegedubai.ae

Untitled-1 1

3/26/2019 1:48:37 PM


ART

Jean-Léon Gérôme - Rider and his Steed in the Desert

60


ART

Embracing the Orientalists The controversial Orientalist painters of 19th century Europe have gained appreciation across the Middle East and the broader Muslim world, according to Claude Piening, Senior Director of Sotheby’s London

F

ew artistic movements have been as hotly debated over the last few decades as the Orientalists. The movement comprised of Western authors, from the US and Europe, who painted what was known at the time as ‘the Orient’— which comprised the North African, Ottoman and Arab worlds. Though these varied in intent and quality, some, such as Jean-Léon Gérôme, gained worldwide renown and influence, which continues to this day. In terms of the Middle East collector, in addition to Muslim collectors

worldwide, however, something has happened—these artists have started to gain popularity. “Over the last 30 to 40 years, we’ve seen a big uptick of interest from the very regions depicted. I’m not only referring to North Africa, Middle East and Turkey, but I’m talking about the wider Islamic world,” Claude Piening, Senior Director of Sotheby’s in London, tells WEALTH Arabia. What has caused the shift? “People of an Islamic background seem to feel they can relate to the subject matters, many of which are Islamic in

feel, such as the prayer scene by JeanLeon Gerome, which depicts evening prayers on the rooftops of Cairo,” says Piening. There have been more changes in the region as well. Rising affluence in the region, and a want to connect with the region’s history, are also contributing factors. Sotheby’s itself could be partially responsible, as it has held its own Orientalist sale for the better part of the current decade in conjunction with its Islamic art sale. “In terms of awareness—when we launched this sale in 2012 alongside the wealtharabia.net

61


ART

Islamic sale, which was a longstanding sale, the Orientalists really opened up people’s eyes to Orientalist art, particularly to our Islamic buyers, who have since become real supporters. They now spend more on pictures than they do on Islamic art, when they were introduced to this through Islamic art,” says Piening. It’s not just individuals who are driving the market. “There’s institutional buyers as well active now, such as the Louvre Abu Dhabi, as well as other museums that are quietly collecting as well. There are even more museums in the wider Islamic world that are being developed and are acquiring works in the meantime, such as in Southeast Asia. Indonesia has the biggest Muslim population in the world. Even though none of these pictures depict this part of the world there’s an understanding of the world,” says Piening. The Islamic art sale in particular pairs well with these paintings, allowing people to see both the real life artifacts and the way that western artists depicted them. “What’s fascinating also is having the sale in tandem with the Islamic sale is that the pictures depict some of the costumes, ceramics, tiles, metalwork and weapons you find in the Islamic sale, so there is a dialogue between the pictures and the objects,” says Piening. For its 2019 sale, the key pieces are by Gerome, who also is known for his 1896 non-Orientalist painting Truth Coming Out of Her Well. “Gerome was a key proponent of the Orientalist genre. He is arguably France’s most famous Orientalist painter of his day. The popularity is not driven by the artist but the subject matter. It’s been interesting to see people not driven by the artists but as by the subject matter. Buyers have come into the field who haven’t heard of what is to me famous artists, but are simply drawn by the compelling subjects,” says Piening. Gerome’s painting Rider and His Steed in the Desert, a rare masterpiece, was sold for $1,494,224. Another one of Gerome’s most famous paintings was also sold in the auction, Evening Prayer, 62

Cairo, which commanded the second highest price of the sale at $950,870. The former was sold to an institutional buyer, while the latter was sold to a private buyer. “Gerome, as you can tell by his proto-photographic style, was very influenced by photography. In fact, his brother in law was Adolphe Goupil who was a publisher of prints after painting and was also a key photographer. He travelled to Egypt with his brotherin-law, as Adolphe took a lot of photographs which Gerome would take back to the studio, study and he would actually work his compositions up from photographs taken from the field as well as sketches he himself made,” says Piening. Gerome traveled to Egypt at least six or seven times. He went up and down the Nile, spent time in Cairo, he also travelled to Turkey, went to Istanbul and Izmir. You can’t expect a westerner to fully understand the culture—how could you—but he made a good attempt to try. He was not an armchair Orientalist, he didn’t attempt to feed off other people’s accounts or pictures. He took poetic and artistic license, and his pictures aren’t always true, they are at least founded upon first hand experience, which is more that could be said for the more exoticising Orientalist, who depicted things such as the harem, who could never have had access to that those spaces.” Rider and His Steed in the Desert is a particularly striking piece. “This picture in particular is not only photographic but cinematic. It was painted in 1872, long before cinema had even been invented, but there’s something in this painting that to me anticipates cinema and I’d like to think that cinematographers took some inspiration from artists, not just the other way around. This is like a shot out of Lawrence of Arabia. It also evokes more modern films—the great desert panoramas of George Lucas, or of Westerns. This is an eastern sea, but it could be the great American west. The contrast between the incredible focus between the horse and the rider and

the more sketched background, which of course is exactly how the human eye perceives, and indeed the camera— you can only focus on one thing,” says Piening. “The reactions I’ve gotten ranged from moving to awesome, in the true sense.” Connecting with history is indeed one of the most important parts of these paintings, for collectors as well as art and history scholars worldwide.


ART

Rudolf Ernst - A New Dawn

Connecting with history is indeed one of the most important parts of these paintings, for collectors as well as art and history scholars worldwide.

These pictures do fill an important visual historical void, because when these pictures were being made, photography was around but not really prolific. Local artists in the region were not painting in a figural way—they were more interested in craft and geometry and metalwork. There is very little in the way of a visual record of these places as they looked 100 or 150 years ago. What

a lot of people in the region are now coming to realise are that these pictures are a window into that world, despite of what has been said about Orientalism by the likes of Edward Said. I think his thesis is a little bit dated now, considering we have such an appetite for these pictures in [the Muslim world],� says Piening. Edward Said, whose 1978 book critiquing the Orientalists, entitled wealtharabia.net

63


ART

Jean-Léon Gérôme - Evening Prayer

Orientalism, had Gerome’s painting on the cover, changed the academic conversation around the Orientalists, though some have said that people’s interpretation of his critiques was overblown, as his critiques do not necessarily mean that there is no room for appreciation of these works of art. “He did not say that Orientalist depictions of the West’s Other were merely fictions. If they were, they would be much easier to deconstruct and dislodge. Quite the reverse, classical Orientalism drew upon elements of positive knowledge and scholarship, work that was often admiring of—at times, even besotted with—its object. The problem with Orientalism was not that it was false in some crudely empirical sense, rather that it was part of a discursive system of ‘powerknowledge,’ a phrase Said borrowed from Foucault,” Adam Schat wrote in the New York Review of Books in 2019. Viewing the paintings from a 64

different perspective, and in collections across the Muslim world, does not necessarily mean that these paintings are still being viewed from that gaze, allowing collectors to potentially appreciate them in a different way, Piening agrees that the paintings are not always strict depictions of the subject matter. Instead, they try to find the truth that a photograph can’t capture. “Whilst ostensibly accurately observed, it’s not actually true. He would manipulate reality to create a more subjective or deeper reality, which photography can’t match,” says Piening. At the auction, another painting by a European artist—a striking portrait of a young Suleyman the Magnificent (circa 1520) sparked a lengthy three-way bidding battle, which saw it surpass its estimate of GBP 350,000 – 500,000 by eighteen times to sell for GBP 5,323,500. “We witnessed an epic auction duel with three bidders, including one joining us on the internet, battling it out for the

Venetian portrait of fabled Ottoman Sultan Suleyman the Magnificent, an artwork that perfectly encapsulates those elements most sought after in a work of art—rarity, beauty and provenance—as well as embodying the cross-cultural dialogue that enriches this varied collecting category. There was a real breadth to the array of artworks on offer reflected both in the strength of bidding and the participation of a wide spectrum of collectors from over 50 countries,” said Edward Gibbs, Sotheby’s Middle East and India Chairman. “Twelve new auction records were set for artists from across the region, amongst them established, indeed treasured, modern masters as well as lesser-known names that we were introducing to our collectors for the first time. It is wonderful to witness art and artists from the Middle East gaining ever wider recognition, reflecting the truly global appeal of this rewarding area of the market.”


Small steps today, big-league tomorrow Feeder school to Ivy League universities since 1872 D wight School Dubai nurtures children of all ages to reach their full potential through the most personalized attention. Offering the world-class IB Curriculum from Pre-K to Grade 10, we groom students for a variety of Ivy League universities, because it ’s never too early to prepare for greatness.

ADMISSIONS OPEN FOR THE NEXT ACADEMIC YEAR Call 800 DWIGHT (394448) or visit dwightschooldubai.ae

Untitled-2 1

Dwight Enrolment Campaign 2019 A5.indd 1

3/26/2019 2:16:32 PM

1/2/19 2:59 PM


DESIGN

A workshop that’s redefining art 66


DESIGN

Inside the Carpenters Workshop Gallery outside of Paris, ahead of the unveiling of its latest project— DYSFUNCTIONAL, supported by Lombard Odier

W

hat is art, and who are artists? It’s a question that has been posed fo r a s l o n g a s a r t has existed, but the answer is always changing. Growing up, we’re taught that what we find in a museum is art—classic paintings by Da Vinci and sculptures by Michelangelo. Things such as fashion, and design were always relegated into a different category, not allowed into the halls of the most revered artistic spaces. This century, however, has changed much of that. The most important date on the artistic calendar in the United States, for example, has become the first Sunday in May, in which the Met Gala combines art and fashion, cementing the connection between the two and continually exploring how the two intersect. Design, however, is still finding its way. wealtharabia.net

67


DESIGN

With that in mind, the Carpenters Workshop Galler y opened T he Workshop in Roissy outside of Paris in 2015—an 8,000 square metre space dedicated to artistic research, bringing together the elite artisans of the world. Some artists, some designers, all finding a new way to merge form with function and create art. O r i g i n a l l y, t h e g a l l e r y w a s partnership of childhood friends, Julien Lombrail and Loic le Gaillard. They first opened a space in London’s Chelsea in 2006 in a former carpenter's workshop. The two now operate four galleries globally in London, Paris, New York, and more recently in San Francisco. The Workshop is perhaps their grandest project yet—and we at WEALTH Arabia are in the space now with its artists, receiving a personal tour of their latest projects. In 2019, the artists will launch these works at a new project— DYSFUNCTIONAL. The project is building to one immersive exhibition of collectible design at Ca’d’Oro, held during the year’s Venice Biennale. The project brings together many famed artists and designers, including Atelier Van Lieshout, Virgil Abloh, Maarten Baas, Nacho Carbonell, Wendell Castle, Vincenzo de Cotiis, Ingrid Donat, Studio Drift, Vincent Dubourg, Stuart Haygarth, Studio Job, Mathieu Lehanneur, Frederik Molenschot, Rick Owens and Michele Lamy, Random International, Charles Trevelyan and the Verhoeven Twins. “When I was invited—or pushed into it—it was all about bringing these designers in one place. The goal is to put people together,” Michele Lamy tells WEALTH Arabia at The Workshop in Roissy. “We talked about the title of the exhibition—DYSFUNCTIONAL. This title is a very good one, and very relevant about the way the Carpenter Workshop Gallery grew up. Since the beginning, it had an idea of dysfunctional. I am a designer. Some of the other artists call themselves designers too. This idea of function is very interesting to 68

Working with Carpenters Workshop Gallery is important for the artists not just because it provides them with a space—it is a true collaboration.


DESIGN

me. As a designer, you’re supposed to provide function. Always, it starts with what the problem is—you want to sit, you need a table, so I’m going to design based on that function for you. Since the very beginning, the Carpenters Workshop has intuited that design can go beyond function. The function still exists, but the idea is not only the function itself. For the exhibition, I will make a bench, stools, and a coffee table, so for sure there is a function but the idea is not only the function. Do we need one more stools in this earth? Probably not. Do we need one more coffee table? Not sure,” famed designer Mathieu Lehanneur tells WEALTH Arabia. Lehanneur, who comes from a French background, is a designer who has bridged the worlds of art and design his whole career. His work is featured permanently in both Museum of Modern Art in New York and the Centre Georges Pompidou in Paris. “We wanted to consider design as a kind of Trojan Horse. When you are in

front of an art piece, you are supposed to be focused and quiet—or at least seem to be focused. There’s an intellectual relationship. With design, it appears as just a coffee table or a stool, but the core is not the function. The message you want to say, the idea you want to transmit, and the concept behind it is the core,” Lehanneur continues. Lehanneur walks us through his personal project, and what he is trying to accomplish—inspired directly by the location where the piece will be displayed in Venice. “What I’m working on is to express and to try to reexperience something we’ve all experienced—being in front of the sea, and this precious and rare moment where you do not need to think, you do not need to talk, you just enjoy the fact you are here and now in front of the sea. It’s one of the rare moments when you realize you are alive, and that is a kind of miracle. I wanted to see if you could transmit the same experience to in front of an object. I wanted to capture part of the sea and put it in one of the most static materials—marble,” Lehanneur says. “I wanted to make the marble look like a hyper realistic view of the sea. I didn’t want to copy paste like a sculptor would do. I didn’t want, either, to give my own interpretation of what a beautiful sea could be. The idea was to look with very complex 3D software that have been developed by programmers and mathematicians for the movie industry in the US to create realistic waves and ocean for films such as Titanic. The interesting thing about this software is that it looks like the real sea in the digital world, by working with an equation for the liquid. This process I don’t choose what’s the perfect form, I just play with the computer and the current, the wind, and their directions,” he continues. Working with Carpenters Workshop Gallery is important for the artists not just because it provides them with a space—it is a true collaboration. “The great chance with Carpenters Workshop Gallery, we’ve been working together or 10 years when he came into wealtharabia.net

69


DESIGN

(L-R) Frederic Rochat, Mathieu Lehanneur, Ingrid Donat, Michele Lamy, Julien Lombrail, Loic Le Gaillard

my workshop to open the discussion. Since the very beginning, I feel that they trust in us, they support us, and they never give a pure carte blanche— it’s an open discussion. Ideas are always very fragile. At the end of a project you can give a clear explanation of the process, but the reality is totally different—it’s something you’re always scared about. Maybe it’s stupid, maybe it’s not. Getting the founders together to interact, to discuss, and transform an fragile moment into reality is a long and tough process. It takes a relationship to make it appear,” says Lehanneur. 70

All works are an expression or application of tremendous creative skill, to be appreciated for their beauty, imaginative or emotional power.

“I agree 100 per cent,” says renowned sculptor Ingrid Donat. T he project is supported by Lombard Odier, the oldest private bank in Switzerland. Frédéric Rochat, the group’s Managing Partner toured the space along with WEALTH Arabia, walking us through the bank’s historical partnership with the arts scene. “Through the history of the bank, there’s always been different generations of partners who have been passionate about art, and effectively decided to support art. Throughout our history, we’ve had the opportunity to support many artists in the contemporary art


DESIGN

space. Through that, we’ve always ef fectively had a philanthropic engagement on our own behalf and through another foundation both in Switzerland and outside of Switzerland to help private clients structure their philanthropic projects. Many of our clients decide at some point in their lives to give back to the community. They’ve also realised that while the art of giving can both be very fulfilling, the administration, paperwork and actual project management of this can be quite time consuming. Our foundation is the umbrella foundation that allows individual families to structure their own philanthropic projects with the help and support of an existing structure with an existing staff,” says Rochat. Rochat believes that their approach to art is similar to how they approach portfolio and relationship management. “In our job, we see ourselves not so much as financial wizards, we see ourselves as artisan bankers. We see ourselves as craftsmen at the service of our clients. For us, like the artists here, every piece will be unique and individual. Every family we advise is a unique client relationship which will get a unique piece of advice. Our model is exactly the opposite of others who are standardising and unifying. We believe in bespoke individuality,” says Rochat. As the Car penters Workshop Gallery aims to move the understanding of art forward, Rochat believes the partnership is a natural one. “One of our big challenges is in our search for relevance, the wealth management industry today is a very open, very transparent, very competitive industry. One central question is how we can become evermore relevant to our clients. We ask ourselves that question a lot in the context of the next generation of clients. Everything to do with our partnership with the Carpenters Workshop Gallery is about the next generation,” says Rochat. Lombard Odier plans to bring its clients to Venice to experience this installation first hand. “This partnership with the Carpenters Workshop Gallery and

the Venice Project is a phenomenal opportunity to attract many of our younger clients for three days in Venice. We’re going to organise a next generation summit exclusively for them. We will discuss and debate with this younger generation, so we will have a full day of workshops and debates on sustainable investment, family governance, succession planning, portfolio management and more. We

In our job, we see ourselves not so much as financial wizards, we see ourselves as artisan bankers. We see ourselves as craftsmen at the service of our clients.

will finish the day with a unique event you can’t do with digital media—you have to be physical there in this amazing setting of Venice. These millennials will spend an entire evening with many of these artists, which we hope will be a really interesting and new experience. It will be about content and experience,” says Rochat. That will include many clients from the Middle East. “We have a Swiss heritage, but we have a very strong international mindset. Our clients are very international, we invest in international asset classes, and our teams are international. The Middle East is a very strong franchise,

and it’s a franchise we’ve had for a long time. This will be an opportunity for the younger generation of some of our Middle Eastern families to come,” says Rochat. The works in the exhibition resonate with Venice’s rich heritage of craftsmanship and artistic expression. Virgil Abloh, who recently joined the gallery’s roster of international artists, will create his first ever functional sculpture collection which is inspired by the lagoon city and its acqua alta (high tide). Nacho Carbonell’s tree-like organic sculptures will transform the Monumental Courtyard of 15th century mosaics into a forest of light. Their shimmering texture will reference the gilt and polychrome decorations which once adorned the palazzo’s façade and their cocoon metal mesh shapes will echo the quatrefoils that decorate the windows of ‘the golden house’. DYSFUNCTIONAL seeks to forget function whilst celebrating the power of artistic expression. The idea of dysfunction, defined as ‘the disruption of normal social relations’, invites visitors to rethink the conventional relationship between for m and function, art and design, the historical and the modern. “We purposely decided to stage DYSFUNCTIONAL during the world’s most important art exhibition, the Venice Art Biennale, to question what defines an artwork, why can artworks not be functional and when does design become art? All works are an expression or application of tremendous creative skill, to be appreciated for their beauty, imaginative or emotional power. By creating this dialogue, we want to follow the spirit of Baron Giorgio Franchetti, who rejuvenated Ca’d’Oro in 1894 and was an avant-garde collector for his time. In partnership with Lombard Odier, with whom we share the same vision, we want to invite visitors to go on an immersive journey in time and explore the blurred lines between art and design in the context of the rich Venetian heritage,” Julien Lombrail and Loic le Gaillard, co-founders of the Carpenters Workshop Gallery, say. wealtharabia.net

71


TRAVEL

The ‘wonder and awe’ of the Middle East 72


TRAVEL

Will Smith on why he loves travelling to the region

W

ill Smith, at 50 years old, is not the man he once was—and he likes it that way. Having kids so young in his life, he has hit a new phase with a renewed love of travel, experience, and giving back to the world around him. “That’s what I’m seeking in my life right now. I want to be able to give my gifts, but I hope that they’ll be received well, and that they’ll bring love and light into people’s lives,” says Smith. It is also later in life that the Middle East has become a second home for the actor, who most recently spent time in Jordan to film Disney’s Aladdin. “When you travel to locations, everything changes inside of you… When we were in Wadi Rum, just to walk out you experience the wonder and awe... For me, it was absolutely spectacular,” says Smith. Jordan is not the only location in the Middle East he loves. “I came to Dubai about 15 years ago. I was crossing over to Mumbai. It was the first time that the Emirates Airline had the nonstop from Los Angeles. And so I stayed here a couple days, and it was absolutely amazing to me what the dream of Dubai was,” Smith says. “There are just some places where they fit for you. Sometimes you just show up places, and you don’t know why, but it just agrees with you. Dubai dreams the way I dream. I’m completely at home, and I feel inspired, and I want to create, and I want to be a part of the ideas, and the bridge between the Middle East and America and the West. I just feel like my gifts would be particularly useful here. I want to be a part of it.”

In Dubai, Smith has a very clear plan of how he likes to spend his time. “You have to start the day at Skydive Dubai. That’s the best way to see the Palm from up high. I brought my kids to Dubai, and we jumped together. I’ve jumped probably five times at Skydive Dubai. I play a lot of golf, and I love to play in Dubai, as it has some of the best golf courses in the world,” Smith says. The Middle East is not the only place Smith loves to travel.

When you travel to locations, everything changes inside of you… “There are a couple of really cool hideouts for me. I love Trinidad, in the Caribbean. If I’m going to disappear, South Africa is another really good place to get away.” There are still boxes left to tick on his bucket list, however. “The Seychelles, the Maldives, Bora Bora. I haven’t done a lot in Indonesia either. I would love to go through there. Those are the top ones on my list.” When travelling, there’s only one item he can’t live without. “I have to have my iPad. I have my whole library on there. I don’t watch movies a lot on flights because of the small screen. I feel like it’s disrespectful to my fellow artists. I can’t say, ‘Hey Denzel! I caught your movie on the flight! You were so little!’ Flying is my reading time.” wealtharabia.net

73


EVENTS

Join the 4 WEALTH Arabia Summit at the Armani Hotel on 19 November th

A

fter a successful event that brought together people from across the individual investment landscape to discuss the most pressing issues with substantive and actionable analysis, we are pleased to announce the next edition of the WEALTH Arabia Summit will be held at the Armani Hotel in Dubai on 19 November. Once again, we will continue to grow and evolve, making sure that the Summit remains a vital part of your calendar, and an excellent chance for you to interact with your peers in the investment world. The WEALTH Arabia Summit was begun with the idea to be a candid platfor m for the world’s greatest investment minds from every sector to share their knowledge and debate the future. We promise that the fourth edition of the Summit will be its best yet.

74


home.saxo/me


Objective based Investing simpliďŹ ed Introducing NBF international investment proposition, our suite of model portfolio options developed specially to guide your investment pathway based on your financial objectives. Through the fact finding journey, we help you define your objectives, align your goals to your specific circumstances, risk capacity, life cycle horizon, and accordingly propose a suitable portfolio to help you achieve your objectives. We will continuously maintain the engagement, track your portfolio and align it to your changing circumstances and market expectations. Partner with NBF and tap your full investment potential.

NBF Investment Management Solutions

Call 8008NBF(623) to start our partnership nbf.ae

Profile for CPI Financial

#50 June 2019  

#50 June 2019