- Investors in the GCC – not a homogenous entity and there is a need to tailor products to their investor segment
- Life wrappers – preferred investment option for Western expats and Non-Resident Indians
- Preference for global equities and home market bias key drivers of expatriate investment behaviour
Findings from the 2011 Invesco Middle East Asset Management Study* show that expatriate investors in the GCC (Gulf Cooperation Council) should not be regarded as a homogenous entity and that significant opportunities exist for life companies who tailor their propositions for each expatriate segment and their varying preferences.
The top asset class favoured by all expat groups was global equities. Thereafter, a strong home-market bias was displayed among each of the Western, Non-Resident Indian (NRI) and Arab segments. Looking specifically at Western expats, their home market bias was 22%. This was calculated by taking their allocations to North America and Western Europe (44%) and removing the non-home-market investor allocations to these markets (22%).
Life wrappers were the preferred option for GCC expatriate investors; accounting for 64% of Western expat assets and 56% of Non-resident Indian (NRI) assets. Given that expatriates make up a substantial proportion of the population in some GCC countries**, these segments therefore present a significant opportunity for international life companies.
Expat preference towards global equity investing
While the majority of GCC locals (87%) were shown to prefer to invest directly through tangible assets such as property, expatriate investors displayed quite different tendencies. Global equities accounted for over 50% of allocations for both Western expats and NRI’s, and over 30% for Arab expats, (compared to a lower 20% for GCC locals). One likely reason is the greater internationalisation of expats versus the cultural ties of GCC locals.
Nick Tolchard, Head of Invesco Middle East commented: “Our findings have highlighted a strong appetite for international investing across expatriate segments in the GCC. Western expat and Non-Resident Indian segments represent a significant opportunity for Life companies with a strategic interest in the GCC. The key is to position the correct set of products to meet the diverse investment needs and risk profiles of the region. Global equities could feature in any new promotions being put forward, overlaid by exposure to the investors’ home market.”
Another, arguably the most important, behavioural trend displayed amongst expat investors in the GCC was their focus on investing in home markets. NRIs had the highest home-market bias among expats at 31% (preferring India), followed by Arab expats at 27% (focusing on MENA) and Western expats at 22%. GCC locals, on the other hand, demonstrated an overwhelming preference for investing in their own region (55%).
Various reasons appear to drive this level of expat home-market bias. Simplicity along with portfolio hedging were frequently cited for the Western expat segment, whilst investor affinity – the desire to invest in their own home market because of cultural ties or market knowledge – was commonly cited by NRI’s, with many wealthy GCC-based Indians owning investment properties and regularly trading local stock market portfolios in India.
The home market theme is also reflected in investor risk appetite. For example, Non- Resident Indians had the greatest appetite for risk of all expat segments with target returns averaging 11% whilst Western Expats had the lowest target returns, averaging 7%, and also the longest time horizons, averaging 6 to 7 years.
Nick Tolchard commented: “In order to effectively target diverse expatriate segments it is critical to recognise their individual requirements and investment preferences and to understand the emphasis they place on investing in their home markets. This means taking into account both home market origin and investors’ risk profile”.
He added: “In general, we would expect Western Expat to have a more conservative investment profile, largely due to their need to save for retirement and their exposure to more mature investment markets. Conversely, we would expect Non-Resident Indians to have more aggressive targets for return given focus on transferring wealth across generations and their exposure to an emerging market like India”
The future and beyond: opportunities with GCC local investors
Whilst the main opportunities for life companies currently exist among expatriate investors, it is important not to overlook the GCC local segment which could be a significant growth area going forward.
Western investors have had a wider choice of investment products for a longer period of time. In contrast, local investors in the GCC region have had less international exposure and less investment choice and so, understandably, invest in what they are more familiar with. However, as internationalisation within GCC countries develops and market awareness increases, GCC investors may turn to opportunities beyond their own home regions and consider investing in international products.
Nick Tolchard added: “Greater international awareness which is driving geographical exposure to international markets makes ‘internationalisation’ the key factor here. An increase in international trade and integration in traditionally ‘conservative’ GCC markets could lead to a greater appetite for overseas investments and as the first financial hub in the region, Bahrain has clearly illustrated this. The local GCC market and in particular Dubai, Abu Dhabi and Saudi Arabia, should not be underestimated, even if it is not a major focus at this time.”[mpoverlay][/mpoverlay]