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Middle East investors stand by their principles
At Lombard Odier, we believe that we need to be constantly proactive to offer the best possible service to our clients. As values-based investing continues to garner significant investor attention globally, we wanted to find out how values are shaping investors’ decisions across the Middle East.
To that end, we asked 300 established entrepreneurs and young wealthy investors from across the region about their attitudes to Islamic investing, sustainability and climate change. Do they already reflect these factors in their investments and do they plan on increasing allocations?
“As a wealth manager with deep roots in the region and a long tradition in values-based investing, we wanted to share our findings to help investors make better values-driven decisions,” said Arnaud Leclercq, Partner and Head of New Markets.
The survey found that both younger and more established high-net-worth (HNW) investors in the Middle East are planning to rapidly increase their exposures to Islamic and sustainable investments.
In a region where strong religious, cultural and social values remain deeply entrenched, appetite for values-based investments is already high. However, younger investors aged 40 and below, said that they would raise current average allocations to Islamic investments from 50% to 60% in the next three years – numbers that marginally exceed those of older investors.
What’s driving the investment decisions of high-net-worth investors in the Middle East today?
Investors in the Middle East want to express their values
Of the 300 HNW investors1 canvassed from across the region, 90% of respondents said that they already allocate some funds to Islamic investments but appetite is growing fast. 61% of investors say that their interest has increased in the last 12 months while two fifths (39%) are interested in holding Sukuks, respondents’ preferred Islamic asset class.
In line with sustainable policy initiatives across the region, HNW investors are also choosing to invest sustainably. 85% of respondents intend to increase their exposures to ESG investments: sustainable investments account for a third of portfolios today and respondents will increase this to half over the next five years. Importantly, investors in the region understand that sustainability factors will become an increasingly important performance driver.
What is driving the increasing appetite for Islamic finance?
HNW investors cite a variety of reasons for this surge of interest. First, investors of all ages would like to respect Islamic principles in their investments.
One younger Saudi HNW investor said: “It has increased because of the significant emphasis on abiding by ethical and sustainable policies. Although these are related to the Islamic law, we can think beyond the religious influences.”
An established Saudi business owner tied the surge in interest to the proliferation of Islamic investment strategies: “Islamic finance is a current booming industry which is gaining widespread recognition and acceptance. Its expanding scale across the markets and wide range of asset classes will give us wide opportunities that also align with our investment principles.”
Importantly, Islamic strategies, which exclude higher risk investments, demonstrated exceptional resilience relative to traditional investments in the challenging conditions that pervaded global markets during the Pandemic. “Islamic finance over the last year has proven its resilience against the worst of the situations,” said a younger investor from UAE.”
“Even in the pandemic situation, Islamic finance was able to withstand the market turmoil,” added another business owner from Kuwait.
Over the course of 2020, the Dow Jones Sukuk index outperformed the Bloomberg Emerging Market Aggregate index on significantly less volatility. In equities, the Dow Jones Islamic Equities fell in lockstep with the MSCI World All Country index but rebounded faster to end the year higher due to its tilt to Technology and other growth sectors, and minimal exposure to Finance2.
Sustainability aligns with Islamic principles
As environmental protection and decarbonisation continue to move up the policy agenda across the region, investors increasingly want to play their part, according to the survey. For the Arab world, where Islamic investments are already well-established, socially-responsible and sustainable opportunities are a natural fit. Both are motivated by a strong desire to act ethically and respect the natural world.
“Sustainable investing is a very practical way of ensuring that we do not harm the environment. The reports on global warming and climate change are alarming. This is a good time to practice sustainable values…,” said a younger investor from UAE.
Tackling climate change is a high priority for respondents. Almost half (49%) are interested in understanding the potential climate impact of their investment portfolio on the environment - in particular, whether it can help to limit global warming to the targets set out in the Paris Agreement. Perhaps surprisingly, the proportion is slightly higher for older business owners (54%) than younger investors (46%).
“We are slowly adapting to the shifting landscape and we are prepared to adjust our investments to meet the changing needs towards more sustainable and ESG investing,” said a Saudi business owner.
Sustainability as a performance driver
Respondents understand that sustainability factors will become an increasingly important performance driver. Almost three quarters (72%) believe that they can generate improved returns through investments that drive positive ESG-related change.
At Lombard Odier, our views are entirely in line with respondents. For us, sustainability is not just a priority, it is an investment conviction. We believe the current global economic model, and many of the companies within it, are fundamentally unsustainable, and will no longer be fit for purpose for the future. Companies that fail to transition to more sustainable models will be adversely exposed to changes in regulation, markets and consumer behaviour, while those that do will be the winners of the future. Sustainable investors will therefore be better prepared for the transition to a net zero and nature-positive economy.
We believe it is our fiduciary duty to help our clients mitigate the risks and capture the investment opportunities associated with this transition.
A call to action
Finally, Respondents sent a clear message to the financial industry. The overwhelming majority would like to receive further guidance from their banking partners on how to invest more sustainably.
81% of investors would like their banking partners to show them how they can integrate sustainable or ESG criteria into their portfolios and nearly as many, 78%, would like to receive regular investment research on sustainability investment ideas.
At Lombard Odier, our mission is to help our clients achieve the outcomes they want for themselves and their family. By delivering truly bespoke client service and tailored investment solutions, including sustainable and Sharia-compliant strategies, we guide our clients towards their specific goals over the long-term, generation after generation.
1 Investors with at least USD 1m in investable assests from the United Arab Emirates, Saudi Arabia, Kuwait, Oman, Qatar, Bahrain, Egypt and Lebanon. The research took place in December 2021.
2 Source: Lombard Odier, Bloomberg
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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