Saudi wealth managers back equities as preferred asset class, see tech as key driver amid COVID-19

Riyadh city

The wealth management industry in Saudi Arabia has been fairly resilient to the pandemic, and has been recovering this year. This is due to improving economic conditions, an affluent client base with the ability to absorb price volatilities, limited investor redemptions, and a rebound in prices across most asset classes, wealth managers told Argaam.

Moreover, the Saudi government’s Vision 2030 transformation plan added significant fuel to the already high levels of growth seen in the Kingdom. “Interestingly, the lockdown policies in Saudi Arabia contributed greatly to increased investment activity, most visible in the sharp increase in trading volumes on the Saudi Exchange (Tadawul),” Fahd Iqbal, Head of Middle East Research at Credit Suisse, said.

Due to COVID-19, social distancing rules restricted the traditional forms of conducting business. This drove wealth managers to incorporate digital channels in their advice, especially as clients expedited the use of technology in their own ways, according to Rajeev Patel, Partner – Financial Advisory at Deloitte Middle East.

“As macro-economic conditions improve, the usage of digital technology and product diversification is likely to accelerate industry growth over the coming years,” he said.

A paradigm shift to digitization was already under way in the Saudi wealth management industry long before COVID-19 accelerated the pace of adoption. The pandemic boosted the transition from physical to digital, putting on wealth managers and banks a responsibility to accelerate digital transformation of client experience.

Digitization is one of the key goals of Vision 2030, and Saudi Arabia is maintaining a robust digital infrastructure. Changing demographics in the Kingdom have given rise to a new generation of young and affluent investors – “baby boomers” – whose needs and preferences are influenced by technology, and the most recent financial crisis brought about by the pandemic.

“An increasing number of young Saudi entrepreneurs are investing in businesses focused on digitization, especially in FinTech. It is clearly a fast-growing investment segment,” Abdallah Najia, Market Head - Global Wealth Management Saudi Arabia, and Michael Bolliger, Chief Investment Officer - Emerging Markets, at UBS Global Wealth Management, told Argaam.

With technology revolutionizing the way wealth management companies operate, client-centric firms have become more profitable as enhanced client engagement is one of the key drivers of digital transformation.

“Knowing and understanding our clients, their needs and rising expectations, while communicating with them frequently, is crucial. Physical interactions are always central in client

relationships, but now they are more open to digital interactions,” Masroor Batin, CEO WM MEA at BNP Paribas Wealth Management, said.

In addition to traditional digital channels, Batin noted that the company organized online events with experts from all over the world and top management to update clients on various investment opportunities. “So far, these digital events are extremely well received by our clients,” he said.

However, Deloitte’s Patel termed the increased usage of technology as a risk that might lead to less personal wealth relationships – a threat that is not limited only to the Saudi Arabian market.

Preferred Asset Class in COVID-19

In terms of asset classes that gained traction during the pandemic, public and private equities topped investors’ portfolio allocations. “Equities performed well during the pandemic, despite a brief initial fall. On Aug. 16, US stocks passed a milestone and were up 100% since the low in 2020 - about 32% higher than the pre-pandemic peak,” Najia said.

A low interest rate environment and volatile markets piqued clients’ interest in private equity in the past two years, according to Batin. He believes the key drivers of activity in the private equity model are its resilience, potential for yielding strong financial returns, portfolio diversification, and access to top-performing funds.

“With private equity, investors increased their financial commitment to real estate. Global economic disruption that resulted from COVID-19 lockdown provided excellent entry points in real estate from a long-term valuation viewpoint. Commercial real estate values almost recovered to pre-pandemic levels,” he added.

Saudi local equity reported favorable results and continued its bullish trend, as the real estate industry recovered well, according to Medhat Al Zayer, Regional Head – Wealth Management, at Arbah Capital.

“As the country slowly emerges from COVID-19 challenges, the success of wealth management industry will depend on its ability to speed up digital transformation, offer tailored solutions, and develop flexible and simplified holistic models,” Al Zayer said.

Aside from the private equity space, investors have also engaged with fixed income assets, such as government bonds, sukuks, and Murabaha investments, whenever equity markets went volatile, particularly at the start of the pandemic, Patel opined. “Saudi government continues to be active in the local debt markets.”

Future Projections

In line with the objectives of Vision 2030, Saudi Arabia embarked on an ambitious reform agenda to enhance economic diversification and private sector investment. Looking ahead, the

allocation of onshore assets is expected to grow, as local players ramp up their capabilities materially.

“The onshore business, which is a more high-net-worth driven industry, benefited from strong investment appetite, excellent liquidity and impressive momentum in the local stock market. The latter is likely to continue given the strongest IPO pipeline in the coming years,” Iqbal said.

He expects the onshore industry to continue to grow strongly and local players to continue to provide a highly competitive landscape.

Najia hails an increased focus on sustainable finance as a dominant trend among Saudi wealth managers. “The public sector appears to put increasing emphasis on improving the country’s environmental, social and governance (ESG) footprint. We see a growing number of investors, both public and private, looking for sustainable investment opportunities,” he added.

Batin agrees, highlighting that environmental awareness is increasing and an acceleration is seen in ESG investments worldwide, particularly in the Middle East. “As sustainable markets evolve, many investors adjust their strategies and shift towards investments delivering a positive impact,” he noted.

To contact the writer, email Paromita Dey at paromita.d@argaam.com