The profitability of asset managers in most Gulf Cooperation Council (GCC) countries will face moderate to high pressure over the next 12-18 months, reflecting the coronavirus crisis and an accompanying drop in oil prices, according to Moody’s Investors Service report
“The sector's relatively low geographic and product diversification and regional geopolitical tensions will add further pressure,” said Vanessa Robert, vice-president, senior credit officer at Moody’s.
“Still, an improving regulatory environment and growing interest from foreign investors will provide some counterbalancing uplift.”
Weak oil prices will hold back economic growth and public spending, with negative consequences for asset managers. However, GCC governments' plans to privatise some state-owned assets should provide some offsetting stimulus. A recent increase in tension between the US and Iran may harm investor confidence, delaying large scale infrastructure projects, weakening regional growth, and weighing on the asset management industry.
Most GCC countries have made regulatory changes to attract foreign investors since 2014, when falling oil prices made economic diversification more urgent. The inclusion of Saudi stocks in the MSCI emerging stock market index in May 2019 has encouraged foreign investment.
As GCC markets open, local asset managers will likely capitalise on their expertise in the region to attract foreign clients.
