#51 October 2019 by CPI Financial

WEALTH ARABIA

OCTOBER 2019

ISSUE 51 | OCTOBER 2019

Only until we find a cure Lionel Messi is teaming up with Only Watch A CPI Financial publication

Only until we find a cure Lionel Messi is one of many teaming up with Only Watch to push watch collecting to a greater cause

Dubai Technology and Media Free Zone Authority

Contents ISSUE 51 | OCTOBER 2019

EDITOR'S LETTER

Greetings all,

elcome to the 51st issue of WEALTH Arabia. It has been an exciting time for the investment world, but as always exciting doesn’t always mean good. Trade wars and crises are a regular part of the world we live in today, and with that comes adjustments in your portfolio. Certain markets are looking a lot less appealing than they once were. Even with the stress that comes with that, there are many positive developments. Cryptocurrency, which went from the latest craze to a laughing stock, has slowly but surely rebuilt itself into an asset class we once again cannot ignore. We also highlight areas such as the Islamic economy for your consideration. Our cover story is a bit different this issue, but I think with that comes a special story. Rather than focus on purely investment, we have taken the opportunity to highlight a philanthropic endeavour that I’m sure many of you may be familiar with, but will be of interest to all. Only Watch is returning this year with unique timepieces that benefit the research for an incurable disease. Hear what its founder, the Prince of Monaco, and Lionel Messi have to say about that on page 10. Till next time,

NEWS & ANALYSIS The latest analysis from the investment world

OPINION MSCI inclusion, one year on COVER STORY Only until we find a cure

INVESTMENT Investor & investing trends in the last 30 years across the region Is the eurozone headed for two decades of Japan-style slow growth? Investment opportunities in the Islamic economy Springing past the crypto winter GCC debt markets showing positive signs Beyond borders

16 22 26 32 34

William Mullally wealtharabia.net

Contents

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SALEH AL AKRABI CHIEF EXECUTIVE OFFICER

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EDITOR - WEALTH ARABIA

MOTORING From the city to the mangroves

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

HEAD OF SALES

NAP ESTAMPADOR nap.estampador@cpifinancial.net Tel: +971 4 433 5320 ADVERTISING

EDITOR - BANKER MIDDLE EAST

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ART Building your sacred space

NEWS EDITOR

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EVENTS The WEALTH Arabia Summit 2019

EDITORIAL

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OCTOBER 2019

ISSUE 51 | OCTOBER 2019

WEALTH WARNING!

Only until we find a cure

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.

Lionel Messi is teaming up with Only Watch A CPI Financial publication

Only until we find a cure Lionel Messi is one of many teaming up with Only Watch to push watch collecting to a greater cause

Dubai Technology and Media Free Zone Authority

Don’t miss your copy of WEALTH Arabia. Subscribe now, full details at: www.wealtharabia.net and on Twitter @wealtharabia.

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This year, Jersey is looking to build on this reputation in a number of areas – including supporting the long-term savings needs of international employees working for firms across the Gulf region. The need for such solutions has been brought sharply into focus in recent times, with numerous studies showing that workers in the region are heavily dependent on gratuity payments to fund their retirement. Further, the provision of long-term savings schemes is anticipated to become mandatory for firms in the region in the near future. Jersey’s response is the International Savings Plan (ISP) product. Introduced in January this year, Jersey’s ISPs enable multinational companies to set up savings plans for their non-resident employees. With proven expertise, a robust regulatory framework and political and economic stability, Jersey is an ideal location for establishing such solutions. Acknowledging the current trend towards greater career mobility, the Jersey ISP offers an attractive degree of flexibility to meet the needs of both employer and employee, and has been designed to ensure employees have access to savings when they need it most. With employee savings plans set to become an increasingly important consideration for firms in the Gulf region in the coming years, Jersey is ready to support this trend and provide employees with a better platform for their future savings needs.

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JERSEY

FRANCE

NEWS & ANALYSIS

rowing food sustainably to meet demand will be one of the greatest challenges we will face, the world is on the cusp of a new agricultural revolution. According to a new study, the way food is farmed, shipped, and consumed will be driven by innovations like vertical farming, laboratory-grown food, and algae aquaculture

Wayne Gordon, Commodities Analyst, UBS Global Wealth Management

The concept of vertical farming, for instance, has the advantage of requiring 95-99 percent less water compared to traditional methods. In regions where water scarcity is common, such as in the UAE, this is an obvious advantage. In addition, we believe it presents a genuine opportunity for investors who wish to invest in more sustainable food production.”

old, which finally left five years of range-bound trading behind to reach our $1485/ oz target, looks set to continue to benefit from numerous tailwinds over the coming months. The Q3 rally was driven by the collapse in global bond yields—without any support from the dollar which strengthened by almost two per cent against a basket of major currencies.

Ole Hansen, Head of Commodity Strategy at Saxo Bank

The biggest risk to rising precious metal prices is the potential that a major trade deal between the US and China will reduce expectations for how much US rates will have to fall. However, looking at the data, credit impulses globally continue to indicate that the economic low point is ahead of us, not behind us. The rapid accumulation of long positions through futures and exchange-traded funds is another potential challenge. Overall, however, the bullish outlook for gold should be able to withstand a correction all the way back to $1384/oz, the level which signalled the breakout of its five-year range.”

U.S.

President Trump is facing an impeachment inquiry. What does this mean for the different asset classes?

Sanja Rogic, Equity Strategy Research, Julius Baer 6

The impeachment inquiry is too minuscule to establish powerful trends in exchange rates and the conviction by the Senate is too unlikely to be discounted right now. The foreseeable rise in political uncertainty intensifies the current preference for the US dollar due to the soft economic backdrop. For equities, it is more or less a non-event at this point. The risk of an impeachment inquiry for President Trump was elevated right from the start of his Presidency and the initiation of the process does not come out of the blue. We maintain our cyclical stance and leave our investment ratings unchanged."

OPINON

MSCI inclusion, one year on

William Mullally

hile Saudi Arabia’s addition to the MSCI E m e r g i n g M a rk e t s Index was much heralded in the region, signaling the next phase of the Kingdom rise, there is still much left to be done. In fact, in the first year of its inclusion, while Tadawul itself has announced that the move has attracted billions of dollars of investment, some analysts have found that there is still much room for improvement. According to Steven Holden at Copley, as reported by Reuters, 85 per cent of emerging markets funds that are active globally have yet to invest any money at all in the Kingdom. There are many reasons for this. High valuations in a small investment universe is one according to Holden, as well as geopolitical concerns that have led some investors to wait a bit longer before getting involved, especially those based in certain markets. However, the process for MSCI Emerging Markets Index inclusion was only completed at the end of August 2019. The story is still at its beginning, so it can be hard to make judgements now. Tadawul itself has continued making moves to develop its market further, announcing just recently that

foreign companies are now allowed to list to list on Tadawul upon the Capital Market Authority (CMA)’s approval of amended Listing Rules including provisions related to foreign listing. Foreign companies will be subject to the same listing, disclosure and governance requirements as Saudi listed companies, and foreign shares will be traded on the Saudi Stock Exchange in Saudi Riyals. “Foreign Listings on the Saudi market reflects the importance of integration between capital markets in the region. This will facilitate issuers’ access to new funding resources and enable investors to reach a diversified pool of investment tools”, said Khalid Al Hussan, CEO of Tadawul. The Securities Depository Center Company (Edaa), a company fully owned by Tadawul, has signed two agreements with Abu Dhabi Securities Exchange and Bahrain Clear to enable foreign companies to list on Tadawul and to unify administrative and operational procedures between the two countries. Tadawul will certainly attract further international investment. As it is still strong as it is, with a number that can only improve and while making moves such as the inclusion of foreign listings, the future for Tadawul still looks bright.

wealtharabia.net

INVESTMENT

Investor & investing trends in the last 30 years across the region The role of Century Financial in the UAE financial landscape

he UAE economy has grown in leaps and bounds from the early 90’s GDP numbers of $40 billion to latest estimates of $425 billion in 2019. Time and time again the contribution of every sector to the economy’s growth has been critical from real estate, to tourism, to the banking and financial services sector that acts as a bellwether of sorts to assess the nation’s economic growth. Perhaps the sector that best describes the overall growth and rising aspirations of the UAE's economy is the financial sector. The sector, which also has one of the highest weights in the final GDP index calculation at around 13 per cent, has far reaching repercussions on other sectors’ growth too. Starting with mobilising investments for the common public to providing them a platform to explore new avenues for earning returns, the end objectives of the financial sector are many. The last 30 years have witnessed significant changes in the investment as

well as financial markets across the world. The fall of the Berlin Wall and Soviet Union in the early 90’s, led to the spread of capitalism and growth of financial markets across the world and the UAE was no exception to this trend. Attractive business and trading provisions together with hospitable conditions provided by the leadership of the Emirate, proved highly effective throughout the last two decades which resulted in bringing Dubai to the world and the world to Dubai. The banking and financial sectors also benefitted immensely as the inflow of foreign investments drove the city and its economy forward at alarming speed and fueled its passion for growth without over dependence on oil. Investment in global markets, particularly those of the US, has long been of great interest to local and expat populous. From the late 80’s to mid-90’s however, only international banks with offices in Dubai, could facilitate such investments albeit at exorbitantly high costs and limited products. Trading

was done through phone and telex operators across order desks in New York, Chicago and London. This all changed rapidly with the introduction of internet-based software, popularly called online trading platforms by the end of millennia, which transformed the industry on a global scale and shifted the balance in favour of private investors. As the industry grew, so did the demand for new products, which is when CFDs (contracts for difference) made headway throughout the 2000’s. Today we are witnessing another revolution in the financial world through the launch of cryptocurrencies, AI-backed trading systems, algorithms and expert advisors that use automated pre-programmed trading instructions to trade markets and track price movements without human intervention. Over the years, new products in commodities, indices, bonds and stocks have also been added to the product portfolio which offers diverse markets for traders. This has been very much

Sponsored Content

Bal Krishen, Chairman, Century Financial

Our goal is to provide the most superior and unrivalled trading experience for our clients. necessary as markets are now not only about ‘buy and hold’ style of investing. The rise of index funds has meant that anything and everything can be accessed through the markets. More recently, exotic financial instruments like structured products have become more common among the high net worth (HNW) clients as they give the investor tailor-made solutions. A structured product can be made on a single security, a basket of securities, options, indices, commodities, debt issuance or foreign currency. All of these new products have certainly helped investors diversify their portfolio from an asset as well as geographical perspective, enabling them to generate stable returns.

Century Financial, a SCA licenced firm, has been present through all the various stages of the UAE’s economic growth. The history and origins of the firm traces back to a period even before Dubai Financial Markets & Abu Dhabi Securities Exchange were launched. With three decades of experience in global financial markets, the firm has remained UAE’s oldest and trusted investment solution provider serving both local and expatriate population alike by not only being the first choice for investment but also to simplify the investment-making choices through highly customer centric approach with emphasis on cutting edge technologies.

Century Financial has helped investors across the UAE, navigate through the various trends in the market by being their guide and mentor, and empowered them to become better traders through its training and education programmes. Investors have been able to access some of the best blue-chip companies in the world, trade live exchange rates of major foreign currencies and multicommodities through the platform offered by Century Financial. For a country like the UAE where banks have predominantly dominated the financial broking and investment space, firms like Century have ensured that investors get more avenues to deploy their funds and get access to other global products like niche sector ETFs that have traditionally not been available even through major local banks. The firm today operates across 100 global markets with more than 10,000 individual product listings giving customers access to multiple asset classes including stocks, commodities, indices, metals, energies and ETFs. Century’s platform has facilitated client’s requirement on accessing specific set of products that suits their needs. As rightly summarised by Century’s Chairman, Bal Krishen, “Our goal is to provide the most superior and unrivalled trading experience for our clients”. For Century, the journey is set to continue as global markets become more complex and dynamic by the day, presenting new challenges and opportunities for the company and investors alike.

Century Financial Consultancy is a privately-owned financial services provider, with a threedecade presence in the UAE that specialises in investments and trading in CFDs (Contracts for Difference), forex, indices, shares, commodities, treasuries and ETFs as well as exchangetraded derivatives.

wealtharabia.net

COVER STORY

Luc Pettavino, Founder, Only Watch

COVER STORY

ONLY UNTIL WE FIND A CURE Luc Pettavino, Founder of Only Watch, has brought together Lionel Messi, Christie’s and HSH Prince Albert III of Monaco to merge the worlds of philanthropy and watch collecting

here have been eight editions of Only Watch, and in the watch community, its story has grown to the stuff of legend. Every two years, the Christie’s-led auction has a unique energy, where the world’s elite watch collectors not only gather to get their hands on some of the most special timepieces available anywhere, but to do so for a greater cause—someday curing muscular dystrophy.

The making of the Only Watch exclusive Ferdinand Berthoud Chronomètre FB 1- Night Star

“I don’t say partners with Only Watch. We only have friends. All of us are Only Watch,” says Luc Pettavino, Founder and Organiser of Only Watch. Add one of the world’s most recognisable names to the people who are Only Watch—Lionel Messi. The world’s top watch brands have gone all-in on Only Watch, creating one-of-a-kind pieces that aim to be in the top tier of even the best collections. Messi partnered with Jacob Arabo, founder of Jacob & Co to produce something spectacular, as Arabo puts it, producing a unique watch that pairs horology and extraordinary gemsetting with an exclusive experience. “One of the reasons for the collaboration with Jacob & Co. was precisely to work on social projects. Congratulations and thank you to Only Watch for giving us the opportunity to auction a watch from the Jacob & Messi limited edition collection to combat such a sad illness ad Duchenne Muscular Dystrophy,” says Messi. As Pettavino puts it, “this is a personal history transformed into a universal story.” wealtharabia.net

COVER STORY

Pettavino’s four-year-old child was diagnosed with muscular dystrophy, a very severe disease for which there is still no cure. Though shaken, Pettavino did not want to sit back and do nothing—something had to be done. “I asked myself very quickly, what could I do to be part of the solution? Sometimes each of us has skills in our lives, we know our limits, and we challenge ourselves. For me, I said that I didn’t want to be a victim of this situation, I wanted to contribute, and be part of the solution. What could I do? My skill is to be sort of a pollenating bee. I had the idea of Only Watch, and slowly, I made calls and inquired,” says Pettavino. What was the idea? “The idea was very simple. For me, the best projects are the ones that you could explain in 30 seconds and a sevenyear-old could get the idea. The pitch

was—what about creating a new watch, no contract, and everything would be given to research? There’s no cost to this project—I live off my own money, and everyone is giving their contributions for free. It’s something simple and demanding at the same time. But it was beautiful,” says Pettavino. Soon, major partners such as HSH Prince Albert II of Monaco were on board, who holds Only Watch under his high patronage. “Only Watch is a one of a kind charity project which combines innovation and the guiding principle of creating beauty to do good. These two extremely precious values— creativity and generosity—are deeply enrooted in our Monegasque culture. Doig good in this case means putting all of our efforts to support scientific research to find a cure to Duchenne Muscular Dystrophy, a disease that is,

Only Watch's last auction, where HSH Prince Albert III of Monaco banged the final gavel to end the Christie's-led event.

to this day, incurable and affects one boy over 3,000 male births,” says HSH Prince Albert III. “This situation can change, thanks to the work of dozens of scientists around the world, some of whom I have had the opportunity to meet and that have humbled me by sharing with me their life devotion to one of the most meaningful causes,” HSH Prince Albert II continues. Pettavino says the only way to get people to join the Only Watch project was to appeal to the better angels of their nature in a positive way. “We all are noble. We have a part of us ready to help. But can you find the key to unlock this part? Do you feel safe to lower our barrier to contribute? That’s what I tried to achieve with 50 CEOs of these brands about this project. You just connect—not judge, not guilt, not

COVER STORY

playing a victim, or telling people what they have to do. If you do that, you’re stuck in a prison—you won’t give. I framed it differently and tried to do something positive. You have to measure what contribution you ask for in life. We have so many obligation, if you come and add an extra weight in people’s lives, then they say that’s a beautiful project but it’s too much,” says Pettavino. Pettavino reached out to the top watchmakers in the world, who have each contributed unique pieces for the show, some of the most coveted in the world. 40 million dollars has been raised cumulatively, all given to research. Pettavino walks WEALTH Arabia through the process. “For me, it’s simple. We collect money due to the generosity thanks to all the contributors. What we do is just carry the money to research. It should be based on the same type of energy, transferred from one to another. We got the biggest possible network of scientists and researchers, and we asked them, what are your needs? What do you need to move forward to find a cure one day? Where are we in terms of academic, fundamental, or applied research? Once we understood their needs, we followed them, supported them and funded their projects. Now we’re getting so close to something working that we have had to create two start-ups in biotechs, one in chemistry and one in biology, because we’re getting close to a cure, and getting close to clinical trials. We did this in the same way that we worked with the watchmakers— it’s light, efficient, and lets people be free,” says Pettavino. “No one has found a solution to neuromuscular diseases in human history, but I believe that this approach will show very quickly incredible results, and we will be part of the solution thanks to us all.” The Only Watch auction will be held on 9 November in Geneva by Christie’s. “Thanks in advance to the people who will be on the watch. It will be a pleasure to meet the final buyer,” says Messi.

Lionel Messi, who's teaming with Jacob & Co for his Only Watch exclusive.

wealtharabia.net

COVER STORY

The most coveted Only Watch pieces of 2019

Hublot Classic Fusion Tourbillon Sapphire Orlinsky for Only Watch Â In a 45 mm Classic Fusion Case, the Classic Fusion Tourbillon Sapphire Orlinsky for Only Watch showcases a white gold bezel, set with 54 baguette-cut topazes. Entirely transparent, it reveals an openworked architecture showcasing the gears, tourbillon cage and power reserve. It will be delivered in a transparent gift box, supported by the famous Wild Kong by the French contemporary artist Richard Orlinski. The owner will also have the opportunity to meet with Richard Orlinski at his art gallery in Paris. Â Estimate: $160-180,000

COVER STORY

Ferdinand Berthoud Chronomètre FB 1- Night Star

An exclusive combination of colors and materials, the one-of-a-kind model is a play on colours at the heart of its design. It features hands and numerals equipped with white luminescent material. Those contrast with the dark tones of the case and dial, evoking the gleam of the stars in the night sky. Historically, stars were navigators’ points of reference for their position in the ocean, recalling the ancestry of the FB1 collection. The white Super-LumiNova evokes a ray of hope that inspires the fight against Duchenne muscular dystrophy, according to President Karl-Friedrich Scheufele. Estimate: $170-200,000

wealtharabia.net

INVESTMENT

Is the eurozone headed for two decades of Japanstyle slow growth? Mark Burgess, Deputy Global CIO and CIO, EMEA, Columbia Threadneedle Investments, on why the eurozone seems headed for a sluggish future

espite it being more than 10 years since the global financial crisis (GFC), the world remains heavily indebted and there is no realistic prospect of that debt reducing in the short or medium term. Barring glaring historical exceptions (such as in the wake of the Great Depression when US debt to gross domestic product (GDP) peaked at almost 120 per cent), sovereign debt levels in many economies are close to alltime highs. They are certainly much higher than they were just two or three decades ago. In the US, the net debt to GDP ratio is 106 per cent and rising, compared to less than 40 per cent in the early 1980s. UK net debt to GDP is at almost 86 per cent but between 1975 and 2018 it averaged below 45 per cent. The story is similar across the eurozone. In Spain, for example, debt to GDP is 96 per cent, against an average of just over 55 per cent since 1980. Today, Italyâ&#x20AC;&#x2122;s debt stands at 130 per cent of GDP, while in China it is over 300 per cent.

Can central banks afford for debt to continue spiralling upwards, exacerbated by a crisis or recession? Or will a perennial low growth and low inflation world mean interest rates stay lower for longer and we can continue to ignore global debt levels? Â RISING POST-CRISIS DEBT LEVELS It is worth reminding ourselves how we got here. These current levels of elevated government and total debt are almost exclusively hangovers of the GFC. When the GFC hit, banks reined back their lending as they grappled with ballooning bad loans and deteriorating balance sheets and needed capital. A credit crunch ensued, hurting economic growth. At the same time, borrowers (both households and corporates) faced a debt overhang as housing and real estate prices fell but debts remained constant. They responded by deleveraging, despite interest rates being at or near zero. Normally, central banks can redress this imbalance by lowering

interest rates, encouraging borrowing. But after the GFC, the private sector had too much debt and preferred to pay it down rather than borrow, despite plummeting interest rates. A decade ago, from having an abundance of borrowers pre-crisis, there was suddenly a dearth and the private sector became a net saverâ&#x20AC;&#x201D; evidenced by huge increases in deposits in the banking sector. This mounting cash sitting on deposit only exacerbated the downturn as, with fewer individuals and companies stepping in to borrow and spend the money on deposit, it failed to contribute to growth. Moreover, tax receipts relative to spending fell and debt to GDP was already climbing as nominal GDP went into reverse. This is where governments stepped in, emerging as the sole remaining borrowers and spending the private sector savings. Government intervention certainly staved off a deeper financial crisis, but there was a huge cost to bailing out the banks and stimulating the economy in this way.

(PHOTO CREDIT: Alex_Kraus/Bloomberg)

INVESTMENT

Awaiting the European Central Bank announcement this autumn.

Today, this cost can be measured by sharp rises in government debt to GDP. These elevated debt burdens have negative consequences for future growth as they have effectively brought tomorrow’s consumption forward to today. Clearly, it is a given that future consumption will therefore be lower. Then there are the swelled central bank balance sheets. Post the financial crisis, central banks such as the US Federal Reserve, the European Central Bank (ECB) and the Bank of England, printed money to purchase government debt. The ECB now owns 26 per cent of Germany’s bond market as well as 21 per cent of the bond market in France and 20 per cent of the bond market of Italy. The Bank of England owns 25 per cent of the UK bond market, the Federal Reserve 18 per cent of the US bond market and the Bank of Japan 40 per cent of Japanese bond market. The central banks could, in theory, write off these debts, significantly improving their sovereigns’ debt burdens overnight.

Regional share of global GDP (%)

Asia-Pacific

Americas

Europe

Middle East & Africa

100

0 1981-90

1991-2000

2001-10

2011-18

2019-30

2031-40

2041-50

Source: The Economist Intelligence Unit

But such a move by a central bank in isolation would undermine currency stability and the integrity of central bank functionality, while coordinated central bank action in our current age of European disharmony, US/ China trade wars and a gradual move towards deglobalisation seems highly unlikely. Therefore, countries’ elevated debt to GDP levels look set to remain elevated for some time.

TURNING JAPANESE How is this going to play out? Are developed economies, in particular the eurozone, heading towards a credit crunch, or are they entering a sustained period of low growth and low inflation similar to the last two decades in Japan? Neither is a particularly appealing scenario, but a credit crunch, inflicting perhaps a prolonged period of negative wealtharabia.net

INVESTMENT

growth, would be by far the worst. Debt to GDP would conceivably rise even further and this would likely result in the déjà vu effect of governments once again having to step in, but this time from a weakened position, having not had time to repair their balance sheets. This is clearly an unpleasant prospect, but it would result in interest rates remaining necessarily low, which would be one positive. Japan-style stagnation is also possible. Since the mid-1990s, Japan has been stuck in a negative/low growth environment with the country struggling to escape entrenched deflation—but at least, even with its net debt to GDP currently at over 235 per cent, its interest costs are still affordable. Indeed, interest rates at or close to zero are a huge comfort for major developed global economies, maybe too much of a comfort. Today in the UK, for example, despite much higher government debt levels than in the 1970s and 1980s, debt servicing costs are much lower. In 1978, interest costs on UK government debt were about 4.8 per cent of GDP. Today the comparative figure in the UK is below 2 per cent. A similar picture emerges in the US, France, Germany, Italy, Canada and Japan. Central banks will seek to keep interest rates low, partly to keep these manageable debt servicing costs in place. If debt servicing did become a worry, it is likely that given the structure and duration of debt, central banks would have the time to address the issue and tighten their belts. There is also the positive scenario that if rates were to climb steadily upwards, it would be accompanied by economic growth, which would negate to some extent the adverse effects of pricey debt. But a sharp hike in rates could make some already elevated debt to GDP ratios a cause for concern. In particular, a sharp rise in rates in Italy (where debt servicing costs are only just about manageable) would have severe negative knock-on effects for its financial sector and the wider eurozone economy. 18

Real GDP (% change - CAGR)

Middle East & Africa

Asia-Pacific

Americas

Europe

World

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

0.0 2011-19

2020-30

2031-40

2041-50

Source: The Economist Intelligence Unit.

Average growth in global population (%)

Population

2.0

Working-age population

2.0

1.8

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0

0.0 1991-2000

2001-10

2011-18

2019-30

2031-40

2041-50

Source: The Economist Intelligence Unit.

Yet the main reason we are sanguine on rising rates in the eurozone is because we foresee neither major inflationary pressures nor accelerating economic growth— necessary precursors for a rising interest rate environment. Indeed, we think the eurozone economy bears some striking similarities to Japan’s, making a prolonged period of low growth and low inflation in the eurozone a high likelihood. Firstly, both economies have sizeable banking systems, which account for roughly 70 per cent of the funding of the corporate sector—dominated by small- and medium-sized enterprises (SMEs). Lower interest rates are still not creating sustained loan growth

to this sector across the entire eurozone. In the periphery, growth is only just returning now, 10 years on from the crisis. And in Italy, it has not yet returned. Similarly, in Japan it took well over a decade from their crisis for sustained credit growth to return despite ultra-low rates. In the absence of borrowers from the corporate sector, both banking systems have also loaded up on government bonds, facilitating the growth in government debt to GDP. THE CONSUMER DEBT BOOM We should also remember that debt is not only a national or government issue—decades of low interest rates have fuelled a consumer debt boom that is once again swelling to alarming

(PHOTO CREDIT: Alex_Kraus/Bloomberg)

INVESTMENT

Mario Draghi, President of the European Central Bank (ECB)

levels. UK household debt (including mortgages, personal loans, student loans and credit card balances) as a proportion of household income ballooned from 85 per cent in 1997 to a peak of 148 per cent in 2008.1 Post-GFC, consumers deleveraged as credit became more difficult to obtain and people focused on paying off existing debt. But borrowing has accelerated once again, evidenced by the debt to household income ratio creeping up from 127 per cent in July 2015 to 132 per cent in Q1 2019. Itâ&#x20AC;&#x2122;s a similar story in the US, with non-housing debt peaking at $2.71 trillion in Q4 2008 followed by a period of deleveraging. Fast-forward to this year and non-housing debt had reached a record $4.02 trillion in Q1 2019.

Central banks will seek to keep interest rates low, partly to keep these manageable debt servicing costs in place. Mark Burgess, Deputy Global CIO and CIO, EMEA, Columbia Threadneedle Investments

Around the world, household debt to income ratios are sky-high, with the highest percentages to be found in Denmark (270 per cent), the Netherlands (222 per cent), Australia (202 per cent), Sweden (181 per cent), and Canada (168 per cent) Clearly, the cost of servicing debt is much lower now than it was prior to the recession, with interest

rates near historic lows, but how many households would be able to cope in a rising rate environment? In the UK, according to the Money Advice Service, 17.2 per cent of the population or 8.9 million people were over-indebted in 2018, meaning they found keeping up with bills and credit commitments a heavy burden, and/ or they missed domestic bill wealtharabia.net

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or debt repayments in any three of the past six months. Low income households can be particularly vulnerable to overindebtedness, and it remains to be seen how they and others would cope if higher interest rates ever became the “new normal” once again, as they were in previous decades. The fact remains that a generation of borrowers in developed economies has not lived in such an era—in the UK the Bank base rate peaked at 17 per cent in November 1979 and hovered in a range between 8.375 per cent and 15 per cent for the following 13 years. But since the GFC, the range has been 0.25 per cent-0.75 per cent. In the US, Federal Reserve data shows the average 30year mortgage interest rate topped out at 18.45 per cent in October 1981—it is now 3.77 per cent and has not been higher than 5 per cent since 2010. LOWER RATES FOR (A LOT) LONGER No matter how low the European Central Bank takes interest rates, the monetary policy mechanism will not work properly if SMEs—the key drivers of economic growth—are not borrowing and their governments are prevented from stepping in because of the Maastricht Treaty deficit caps of 3 per cent. The result will be continued deflationary pressures, increasing the need for sustained low interest rates. This is further supported by the fact that wage growth—a key driver of rising prices—is showing little sign of materialising within the eurozone. A myriad of factors, ranging from globalisation, technology and automation, to a rise in part-time and flexible contracts and falling unionisation numbers, are so far keeping salary rises to a minimum. Where there have been rises in wages, they haven’t sneaked their way into inflation figures. We see there being little change to this in the medium term. 20

What’s more, the experience in Japan indicates that it will be very hard to escape a low growth and low inflation environment even if productivity is rising and governments are running fiscal deficits. Increased corporate and personal borrowing would counter this but potential solutions to fix problems in the banking sector (such as bank consolidation, relaxing fiscal rules or changing ECB inflation targets) look unlikely. We therefore believe the eurozone is entering a prolonged period of low

inflation, combined with low growth, which will keep interest rates low for the next 10 to 20 years. In this lower for longer environment, elevated debt levels are here to stay. It’s going to be a multiyear, perhaps even multi-decade workout, with a dearth of growth and income opportunities persisting for savers and investors. High levels of leverage would also suggest a heightened level of volatility. Time to buckle up for what is likely to be a bumpy ride.

European Central Bank is confronted with high expectations David Kohl, Chief Currency Economist, Julius Baer

he outlook for the European Central Bank (ECB) council meeting in mid-september appears very ambitious, as a further reduction of the deposit rate and a generous resumption of asset purchases are expected. However, aggressive expectations on both issues could well be disappointed. The ECB is expected to loosen monetary policy further at today’s policy meeting. Regarding interest rates, the ECB is currently applying a negative rate of -0.4 per cent, and a further cut to -0.6 per cent appears possible, particularly if tiering were introduced. Tiering is intended to protect the portion of bank deposits that stems from penalty interest rates on clients’ savings. The resumption of asset purchases is more controversial. Various national central bank presidents have expressed doubts about whether additional asset purchases are necessary at this point. The disagreement inside the ECB regarding additional asset purchases could make it difficult for the central bank to calm growth concerns in the eurozone. Yet financial conditions in the eurozone have already loosened, as market interest rates—particularly long-term government-bond yields— have declined markedly in recent months. Latest credit data out of the eurozone appears to reflect some of these better conditions, as credit growth has reached its highest level since the financial crisis. ECB guidance that rates will remain low until inflation moves closer to the 2 per cent target could help to perpetuate the improving credit dynamics, which would support eurozone growth. Generous help from monetary policy is still highly welcome, as an inflation rate of 1 per cent is not even close to the ECB’s target. The current cyclical backdrop remains weak and policy uncertainty is still a burden for growth.

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Investment opportunities in the Islamic economy WEALTH Arabia speaks to Shimmy Mathew, Chief Financial Officer, KBW Investments

ow much potential do you see in the Islamic economy from an investment perspective? I think the Islamic economy offers boundless opportunities; especially for startups. This is the still under-served, and often untapped, market share that entrepreneurs are looking for when they are founding a new venture. This is especially true for segments that are still relatively nascent like FMCG and the Islamic hospitality sector. So-called ‘dry hotels’ aren’t a niche market; there is a huge demographic of clients that seek this out when planning trips for both business and for leisure travel. Building on the FMCG example, our sister company KBW Ventures has invested in Geltor. Briefly, Geltor is a B2B deep tech company that develops plant-based collagens and gelatin for use in cosmetics and foodstuffs.

(PHOTO CREDIT: Yulia_Lisitsa/Bloomberg)

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The obvious implication here is that the whole Islamic economy, and those that observe Kosher as well, will opt for products that are made with Geltor’s scientifically-advanced ingredients. Products made with Geltor’s patented collagen and gelatin will become the preferred products for two simple reasons: no part of the cosmetic or food product will be derived from swine, making it extremely attractive for those who are observant in terms of faith, and the ingredient quality and breadth of application is truly excellent. Certified Halal, Geltor’s N-Collage is the first-ever vegan collagen technology, and it was awarded the “Innovation of the Year” title at the 2018 CEW Beauty Awards. It is quite a prestigious honor to receive from a majorly influential B2B cosmetics body.

KBW Ventures has invested in Geltor, is a B2B deep tech company that develops plant-based collagens. wealtharabia.net

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Halal and Kosher certifications are widely understood and thus inspires confidence in vegan markets for example, when determining if swine byproducts were or were not used in the production process. Shimmy Mathew, Chief Financial Officer, KBW Investments

KBW is greatly focused on sustainability and ethical concerns, do you feel that there is a lot of overlap between those concerns and Shari’ah compliance? Sustainability, ethical business, and Shar’iah-compliance are highly compatible. So many parallels exist, not just in terms of governance, but in terms of who you can cater to in the market. While Shar’iah-compliance is clearly more of financial or businesscentric type term, for those that are familiar with it, it does inspire confidence in the overall ethical footprint of the company itself. I feel the major gap in knowledge lies in terms of the lay consumer knowing what exactly Shari-ahcompliance entails—this would be more of a communications issue and would need some type of strong marketing to really be taken advantage of in the wider sense. That said, Halal and Kosher certifications are widely understood and thus inspires confidence in vegan markets for example, when determining if swine byproducts were or were not used in the production process. Does Shari’ah-compliance extend past just the businesses that you work with to your operations? KBW Investments works across manufacturing, development, and construction mainly. While these companies aren’t certified Shari’ah compliant as a financial operation would be, we are in line with Islamic principles. Our only officially compliant business, Crestmount Capital, was divested recently through a sale to a private individual. 24

What are you working on now? What do you have planned for the future? Presently, our efforts are concentrated on Arada. We are in the process of handing over Phase 1 of Arada’s first community, Nasma Residences in Sharjah. Arada’s Chairman recently presented the keys to the very first homeowner in Nasma Residences during a small ceremony; it was the first of 107 homes in Phase 1 to be handed over. It is worth noting here one of the value-adds consistently mentioned by Nasma’s homeowners is the proximity of Sharjah’s largest mosque. During our sales phases, this was often alluded to by our customers as a desirable factor. The mosque itself was opened by H.H. Sheikh Dr Sultan bin Muhammad AlQasimi, Supreme Council Member and Ruler of Sharjah, and garnered a significant amount of attention due to its capacity of 25,000 and for its stunning architecture and design schema. What is your personal finance philosophy? I have a few rules that I believe are important in terms of personal finances. Do not over-leverage; you should be extremely aware of your limitations. When considering new investments, conservative heads prevail. Diversify investments and assets in your portfolio to ensure that you weather various markets shifts. And finally, it is essential to save a minimum of 20 per cent of your income. This will see you through any unexpected occurrences, financial or otherwise.

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investment class, you typically meet those who echo your existing interests. Through launching Crestmount, and subsequently Crestmount Fund I, we were exposed to a different set of market players and market influencers. We learned a great deal about Islamic financial hubs, and when and how the deal flow itself is actually occurring.

FLASHBACK:

WEALTH Arabia sits down with HRH Prince Khaled bin Alwaleed bin Talal, Founder and Chairman, KBW Investments

ell me about the history of KBW Investments. I founded KBW Investments four years ago with the idea that it would act as the vehicle for most of my corporate investment activities, and that it would later act as the holding company or ‘parent’ company for entities that would work well in the Group overall portfolio. KBW’s Group CEO Ahmed Alkhoshaibi proposed that we begin with investing in manufacturing via acquisition, and from there we began developing the schema that the Group follows until the present day. In mid-January we launched our newest company, ARADA, in partnership with Basma Group and we’ll be announcing ARADA’s first development project

shortly. Outside of KBW Investments, I have my private investment activities in an angel capacity, and I’ve also solely founded KBW Ventures. What did you learn about the Islamic investment space through your experience with Crestmount? A salient takeaway is that not only is the appetite for Islamic investment opportunities strong, it’s much more pervasive than we first thought. Initially, the idea was floated that it was a ‘niche’ which it isn’t. I think in investment circles an echo chamber exists—the type of investors you end up interacting with are based on the types of investments you make. So, if you’re into a certain type of fund or a certain

What have you found to be the main benefits of the Shari’ahcompliant structure? The main benefit to participating in the Islamic financial marketplace is the fairness and ethics involved, in my opinion. By not investing in prohibited areas, you aren’t contributing to potential pitfalls in society—that’s always a plus. Is it a benefit? Sure, you’re able to put your money into businesses that still turn a profit while remaining aligned with your own personal moral compass; that, to me, is a win-win situation from both commercial and ethical perspectives depending on what value system you choose to adopt. What do you feel the Islamic finance space most needs to improve upon in the future? While standards and guidelines do exist for Islamic financial instruments, presently some aspects are positioned more as recommendations rather than absolutely binding. It’s true that certain parameters must be followed, but others are suggested as a best practise scenario. One codified source of requirements and recommendations that would act as the formal global ‘rule book’, so to speak, would be optimal. This, developed by a global governing body incorporating the opinions of the established Islamic economics and finance experts, could also perhaps archive the respective Fatwas in the financial space. It would be really useful and help to promote more integration, in my opinion.

wealtharabia.net

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Springing past the crypto winter Yehia Badawy, Co-Founder of Rain, the Middle East’s first regulated cryptocurrency exchange, speaks to WEALTH Arabia about the future of the much debated blockchain technology

hat’s the sentiment for cryptocurrency at the moment? When you started this journey, the conversation around cryptocurrency was very different than it is today, with many highs and lows in between. How do you think the ups and downs have helped cryptocurrency mature to the point that it’s at today? I think we are at a turning point. In its first wave, pre-2017, there were a few boom and bust cycles within this space, and it was largely due to a few people understanding how this works, and then others who are just trying to make a quick profit without understanding the fundamentals. This was accentuated in 2017 when the bitcoin price, and, consequently, all the other cryptocurrencies, appreciated rapidly in price. This drew in an 26

uninformed crowd that was really just in there to make a quick buck. Some of these didn’t even understand what they were doing by buying this thing. Following that, there was a sharp decline in price. Bitcoin went down from almost $20,000 all the way down to around $4000. During that time, a lot of people lost money, and confidence. There were a lot of bad actors in the space. Certain companies and entities were using the words bitcoin, etherum, and any other to mask whatever scheme they had centered around crypto, but it was in the end some sort of scam. Unfortunately, attaching those scams to cryptocurrencies themselves caused a lot of reputational damage to this technology. We what we refer to in the industry colloquially as the ‘cryptowinter’. During that time, spanning late 2017 until early 2019, a lot of projects within the community were coming to fruition. People hit the restart button.

I like to draw parallels to the startup bubble in the late 1990s and early 2000s in Silicon Valley. People saw a lot of exciting companies, they were throwing money at them, they didn’t really understand what these companies were doing. If you look at the venture capital space now, and how people do investments, there are agreed upon norms and traditions, things to be done and specifically legal frameworks and how to operate that have made that landscape much more mature. I would say the same thing is happening in the cryptocurrency space. Now that people saw the sharp rise and decline in price, they understand this is not something that you get into without informing yourself about it. That’s what we’re finding—people are becoming more careful, and they are interested in reading more, and understanding this technology. That’s great for us—we’re always pro-education and we sponsor

(PHOTO CREDIT: Volodymyr Shtun/Shutterstock)

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meet-up groups and sessions where we go on the ground in different city to educate people and make usre that whoever is thinking about it has the right resources to go about it. To be honest, we’re breaking a lot of records. Every year, we’re seeing more volume, and more interest. Whether on the retail side of the institutional side, things are looking very good. It’s partially driven by the increase and stability in price, but also greater interest and greater education. One thing that’s really helped us is being regulated by the central bank. This gives people the confidence that they’re dealing with a company that is under a certain amount of supervision and that they’re safe in dealing with us. Do you see any key differences in the investors in the Gulf from what you do in other markets, in terms of savviness, or approach? I would say there are more similarities than there are different. What we see in investors in this region is really on par with those that exist globally. I have a banking background. I used to work at a bank in Kuwait, and I was on the institutional desk dealing with institutional clients in Europe and the US that were interested in capital markets in the region. With that background, and then dealing with regional investors in my current role, I see a lot of similarities, and the same principles being applied. The only difference is the need for more relationship building, and more face to face meetings and conversations. That’s something we love to do. This aspect of business, which is part of our heritage in how we do business in the region, has spilled over into this space as well in the people that we’ve met. How did Rain develop from the initial concept? The four cofounders of the company met online in 2016. Our goal was to create a regulated cryptocurrency exchange in the region. Our region was the only one without a regulated exchange. You had exchanges that were regulated in 28

A trading office in Manama, Bahrain.

A cryptocurrency trading platform in Asia.

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North America like Coinbase or Latin America, or even in Korea and Japan. In Europe you had Bitstamp. We were the only one left that didn’t have a regulated and licensed exchange. We believe that cryptocurrencies are game-changing innovation, but they do need the right platform to operate on. Part of that is building an ecosystem where people understand what are risks and rewards of dealing with this new innovation, and also how companies should organise themselves. To do that, we have to speak to regulators in the region, and get to the point where we’re agreeing this is something that should be regulated, and this is something that’s overall good for the economy.

To do that, we went to several central banks in the region, and they listened to us, but they weren’t really interested in this. It was too early for some of them. We happened to get a meeting with the Central Bank of Bahrain in early 2017, and during that meeting we discussed what bitcoin is and why it’s important that the Central Bank of Bahrain should consider regulating cryptocurrencies, and then we expressed interest in developing the conversation further with the Central Bank of Bahrain. The conversation went really well—it ran on for more than it was planned and there were more people in attendance due to their interest. Ever since then we’ve been in close collaboration with the Central Bank of Bahrain. During the same year, they told us about the regulatory sandbox programme which commenced in November 2017. We were the first cryptocurrency company to enter the sandbox and the second company overall. We stayed in the sandbox from officially operating in December of 2017 all the way up to our graduation from the sandbox in February of 2019. During this time, we were serving a limited set of users as per the rules and regulations of the Central Bank for the regulatory sandbox. We were also developing our product further— developing our website and mobile apps for Android and iOS. We were able to assist a limited set of users in conducting transactions and offering them support. In February 2019, the Central Bank of Bahrain launched the crypto-asset regulation module, and they were the first Central Bank in the GCC to do that in the GCC. The final form of the regulation was in line with global standards and what we expected to see, and we were very happy with that. Then we immediately began the application process to acquire the license, which we did throughout this year, and then in August of 2019 we received the license from the Central Bank of Bahrain. We were live and serving users since 2017, but now post-sandbox we have no limit on the users we can serve and the transaction sizes. We have seen some healthy growth since acquiring the license.

Yehia Badawy, Co-Founder, Rain, Middle East

Why was Shari’ah-compliance importance for the exchange? For us, we understand the context and the region. I come from a banking background and I understand that Shari’ah compliance and Islamic finance are a cornerstone of the economy in the region. One thing that’s importance for us to do is to bring an international and global technology into the region with an institutional standard, but also to understand the context we’re operating within. During our conversations with institutional clients and family offices, they’re especially interested in understanding whether becoming Shari’ah-compliant was a part of our plan. While this was always a part of our plan, we didn’t know, until we’d had those conversations, that it would be a requirement as early as it was. We went about canvasing the landscape and finding the best partner to work with and we settled on Shari’ah Bureau who had already worked on this specific technology with another company in the region. We were very lucky to have that done quickly and become the first Shari’ah-compliant cryptocurrency platform worldwide. wealtharabia.net

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We had inquiries of people asking how this impacts them, but overall we just got positive comments from our client base. How does it affect the offering exactly? It is just technical or are there substantive differences? Our certificate deals with both clientfacing and operational facets of our business. The certificate is for providing the services. While the Shari’ah Review Bureau screened the assets on the platform, they also did an audit on the service itself on the system of buying, selling, and storing cryptocurrencies, and they found that the measures that we implemented are in line with Shari’ah guidelines. What kind of support did you get from the Bahrain Fintech Bay? How integral was it to your success? None of the founders are from Bahrain, two of us are from the US, one is from Saudi Arabia and I am originally Egyptian. Bahrain was new to us, and when we first met with the Central Bank, we quickly found an ecosystem of entities that’s really helping us grow, thrive, and succeed. The Bahrain Fintech Bay was a key partner—they were instrumental in getting us the right introductions to people and helping us in conversations

Bahrain Fintech Bay

We were the first cryptocurrency company to enter the sandbox and the second company overall. Yehia Badawy, Co-Founder, Rain, Middle East

with the Central Bank. Regulators are focused on getting things done right, but it sometimes takes time for things to move forward. What Bahrain Fintech Bay did was facilitate conversations, make sure our voices were heard, make introductions on the policy ide but also get us plugged in in the community, and we’re grateful for that. How much are you tapped into the broader Halal economy? Are you tapped into the rest of the Islamic world? We would hope that we are, because we are about building infrastructure. It’s similar to ISPs in the early days f the internet. What we’re doing is setting up the foundation for people to be able to buy and sell cryptocurrencies in a way that’s regulated and more economical. Part of that is building the right infrastructure for the industry itself, and the Halal economy can only build upon that with more Shari’ah-compliant products and initial coin offerings.

What are your next steps? The future is very exciting. The ecosystem here in Bahrain is wonderful, and we’re glad to be based here in Manama. We are hoping to expand our physical presence throughout the region. We are already serving clients in the GCC and broader Middle East region, but we want to make sure we’re achieving regulatory redundancy, and we’re already in conversations with different regulators in the GCC to replicate this relationship we have with the Central Bank of Bahrain, and with these other regulators. That’s the best thing to do—you have to meet with the regulators. They have to get to know you and trust you and understand that we both want the same thing, and we’re just looking at it from different angles. We’re also planning to launch an exchange service by the end of this year. We’re now operating on a brokerage model, where clients buy from us and sell to us, but later in the year we’ll enable an exchange service so that clients can buy from each other and sell to each other, basically creating a marketplace. We believe that an exchange product and service is something that had to come later on because we were aware of the liquidity that existed in the market at the time that we launched. It seemed like having a brokerage and then seeding this liquidity and then coming up with the exchange would be the better order of things. That’s something we’re excited to do. We’re growing our institutional offering to be more targeted. We’ve seen a lot of interest in the pat year from institutional clients, and we’re excited to develop those conversations.

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Join over 400 senior banking and finance officials from across the Middle East as we honor the outstanding institutions that shape the region’s financial landscape.

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• Best Communications Infrastructure Provider • Best Commercial Bank

Jamie Dimon, Chairman and Chief Executive Officer of JPMorgan Chase, which oversees the index.

GCC debt markets showing positive signs Mohammed Khnifer, Senior Associate, Debt Capital Markets at Islamic Corporation for the Development of the Private Sector (ICD), writes for WEALTH Arabia about the positive developments for the Middle East region’s Sukuk market

(PHOTO CREDIT: Giulia Marchi/Bloomberg)

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y the time everyone read this in October 2019, government bonds and Sukuk issued by Saudi Arabia and four other Gulf states will have joined, or are about to join, JP Morgan’s emerging markets (EM) bond indexes. This follows Saudi Arabia’s inclusion in the MSCI index at the beginning of the year, a landmark move. Their inclusion was a gradual one. It started on 31 January and it will be completed by 30 September. By now, these states should have realised more than their original weightage in the index (i.e. to be accounted more than 11.4 per cent of the benchmark, a big change in one year). This is due to the fact that these states have issued more debt this year than expected, based on the early figures measuring their weightage in the index released early this year. LESS VOLATILITY The move was expected to have attracted a total of around $30 billion of new foreign investment into their debt. What is important, however, is that such credit, within emerging markets, is gradually being appreciated by international investors. For example, we have seen that after the Argentina poll results in August, vulnerable credits have suffered a short-lived selloff in EM, while higher-rated ones appeared unaffected (e.g. GCC).While such credits have sustained geopolitical pressure in the region, the premium over EM peers are still there. THE LOWER UST YIELDS, THE HIGHER GCC CREDITS The second factor that will boost GCC debt to outperform is the interest rate cut by the US Federal Reserve in July. This is an attractive rate environment for issuers as well as those who have issued debt in 2018 as such securities are probably is being traded at premium in the secondary market. Further, the 30 years US Treasury yields have been seen traded below 2 per cent. This credit phenomena will drive prices of the 30 years (investment

Total return since 1987 (US$) 2400

G7 Index

2200

EM (Emerging Markets)

2000

Europe

1800

USA

1600 1400 1200 1000 800 600 400 200 0 Dec 31, 1987

Dec 31, 1992

Dec 31, 1997

Dec 31, 2002

Dec 31, 2007

Dec 31, 2012

Source: MSCI

Downhill from here? Fed officials lowered their benchmark rate for the first time since 2008 4.50

Federal Funds Target Rate - Upper Bound

4.00 3.50 3.00 2.50 2.25 2.00 1.50 1.00 0.50 0.00 2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Source: Federal Reserve

grade) GCC bonds into historical high levels. We are talking about bids around 116 for Saudi government. at some point in July! This is due to the fact that yields are between 5 to 5.25 per cent. There is a correlation between UST yields and the spreads of GCC sovereigns as they both being used in the pricing mechanism of the debt instruments.

euro yields and this is not a bad thing for highly rated GCC credits. It was reported that some investors, namely euro-focused investors, are offloading their euro negative yields holdings and are heading to attractive highgrade yields. This additional demand will prove positive to investment grade GCC credits who have issued eurodenominated debt.

EURO DENOMINATED BONDS AND SUKUK It seems there is a spillover from negative

Mohammed Khnifer can be reached at mkhnifer@isdb.org and on Twitter @mkhnifer. wealtharabia.net

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Beyond borders Marco Gantenbein, Managing Partner of Henley & Partners Dubai and Head of Middle East Operations, traces the rise of the global citizen for WEALTH Arabia

(PHOTO CREDIT: By Montri Thipsorn/Shutterstock)

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hen the first modern citizenship-byinvestment programs were developed in the mid-1980s and early 1990s, the investment migration industry was largely unformed, unknown, and unregulated. Today, by contrast, the market is an established and evolving feature of the economic landscape, and is growing faster in the Middle East than in any other part of the world. Thousands of people now apply for citizenship and residence each year, and by the end of 2017, there were over 30 active and successful programs in existence. But what benefit do nations get from administering citizenshipby-investment programs, and why are individuals so eager to get their hands on a second passport? The boom in the global citizenship market over the past decade has seen the industry gain widespread credibility and acceptance. The European island

of Cyprus legalised citizenship-byinvestment in 2011. Two years later, both Antigua and Barbuda and Grenada in the Caribbean launched citizenship programs. In 2014, EU member state Malta introduced its Individual Investor Program, which is the only one of its kind recognized by the European Commission. The primary benefit for states that administer citizenship-by-investment programs is significant financial investment in their domestic economies. The cost and design of each program vary, but most involve an up-front investment into the country. These inflows of funds are considerable, and the macroeconomic implications for most sectors can be extensive. Foreign direct investment brings capital both into a country’s public sector—in the form of donations to the government, tax payments, or treasury bond investments—and the private sector, in the form of

investments in businesses, start-ups, or real estate. Countries are able to use citizenship-by-investment funds to finance infrastructure development and improve their people’s standard of living, and those that save their inflows may be able to improve their fiscal performance, minimise any dependence on international aid, and reduce national debt. Apart from these economic gains, successful applicants also bring intangible benefits to receiving countries, such as scarce skills and rich global networks. They add diversity and uplift host nations through their demands for improved and novel services, which in turn creates new employment and entrepreneurial opportunities. As the number of successful applicants increases each year, host countries often gain international prominence on account of their increased competitiveness. This results in other benefits to the country,

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Guinea, Tonga, Honduras, Canada, Brazil, Guyana, and Barbados. Thus, eliminating visa requirements is a helpful step along the path to borderless travel, even if it cannot provide the same advantages to countries or individuals as citizenship-by-investment programs. For the privilege of fully comprehensive global mobility and flexibility, alternative citizenship is by far the best solution, and for this reason it is consistently sought after by highnet-worth individuals who are willing to spend significant sums in order to secure it in the hope of better opportunities. Somewhat unsurprisingly, it is becoming increasingly popular in the Middle East, where instability in countries such as Yemen, Syria, Iraq, and Lebanon means that many people in the region find their movement and opportunities constrained by their passports.

Marco Gantenbein, Managing Partner of Henley & Partners Dubai and Head of Middle East Operations

including growing publicity and media attention and a boost in tourism, which may encourage more potential citizenship-by-investment applications. For applicants, a second or third passport does not just mean increased travel freedom. Having an alternative passport also grants its holder the right to do business and settle in an expanded set of countries and regions, as well as allowing access to all the benefits enjoyed by other citizens. It also eliminates a great deal of the inconvenience surrounding visa applications and passport renewal or replacement processes. Most importantly, though, an additional passport can literally save a person’s life in times of political unrest or under heightened terrorism risk, or in other delicate political situations. At such times, a second citizenship can be an escape route, allowing people to secure a safe future and an improved quality of life for their families. 36

While citizenship-by-investment offers the greatest rewards to investors and the host nation, there are also mutual benefits to be obtained simply by removing the barriers to visa-free travel. While the advantages are not as significant as those received through citizenship-by-investment programs, many governments have adopted this approach. Earlier this year, for example, the UAE allowed Chinese passport holders to enter the country without a visa, which led the Emirati hospitality and tourist industries to report a 70 per cent growth compared to 2017, as Chinese travelers took advantage of their newfound access to the Middle East’s main hub. Another benefit for the UAE is that like many such visa arrangements, the agreement with China was reciprocal, and in fact UAE passport holders can now visit 158 destinations visa-free. This year alone, they have gained access to Ireland, Burkina Faso, Uruguay,

THE FUTURE OF GLOBAL CITIZENSHIP In recent years, the global citizenshipby-investment industry has experienced unprecedented growth, with thousands of people applying for alternative citizenship and residence each year. Nonetheless, there are still many countries where it makes sense to start new programs, and the industry looks set to continue to thrive as global demand for alternative citizenship solutions increases. However, as the industry grows in visibility and breadth, so too does the cloud of public dissent and opposition regarding the perceived ‘marketisation’ of citizenship, as does concern from multilateral organisations about tax and money-transfer practices. Accordingly, a strong culture of self-regulation and due diligence is essential to the industry’s continued success and sustainability. The challenge for the industry, then, is to build longevity and futurereadiness while carving out its place in the global community as a beacon of innovation, collaboration, professionalism, and responsible investing. The global citizenship-byinvestment industry matters and, by all accounts, it is here to stay.

INVESTMENT

The landscape for global citizenship: A closer look Country

Required Amount of Investment or Donation

Time to get second citizenship and passport

Immediate Result of the Program

Cyprus

Investment EUR 2,000,000 + non-refundable donation of EUR 150,000 is required. Investment must be kept in Cyprus minimum five years.

Citizenship and passports can be obtained in 7 – 8 months with at least one visit to the country.

Investor and his family members get EU citizenship and second passport that allows to settle permanently, work, study, or to do business in any EU country.

Malta

Investment of EUR 500,000 (350,000 into property acquisition and 150,000 into bonds) is required. Donation of EUR 650,000 to governmental foundation is another condition.

Citizenship and passports can be obtained in about 12 – 14 months.

Investor and his family members get EU citizenship and second passport.

Bulgaria

Full investment option: EUR 512,000 is invested 2,5 years into government bonds for five years to get permanent residency and another EUR 512,000 is invested into government bonds for three years to get citizenship. In both cases investment is made without interest to the investor.

Investor and his family members get Bulgarian (EU) citizenship and passport..

Montenegro

Donation of EUR 100,000 + investment of EUR 250,000.

Full citizenship in 3-6 months.

Investor and his family members get full citizenship and second passport with visa-free access to Europe.

Moldova

Donation of EUR 100,000.

Full citizenship in 3-6 months.

Investor and his family members get full citizenship and second passport with visa-free access to Europe.

Turkey

Fixed capital investments of at least $500,000 or real estate in Turkey worth a minimum $250,000 with the special condition of not selling it for at least three years.

3-4 months

Investor and his family members get citizenship and passport. Turkish passport has a limited visa free travel list (all the EU countries require visa).

St. Lucia

Donation from $100,000 to 190,000 (depending on a family composition) to the National Economic Fund or Refundable bond investment from $500,000 to 550,000 (depending on a family composition)

Citizenship and passports can be obtained in 3 – 5 months without visit to the country.

Investor and his family get citizenship of St. Lucia. Passport of St. Lucia allows visa-free travel to 114 countries including Schengen Area (28 countries), the UK, and Ireland.

St. Kitts & Nevis

Donation of 150,000 into The Sustainable Growth Fund or investment of at least $200,000 into real estate in the projects approved by the government.

Citizenship and passports can be obtained in in 3–5 months without visit to the country.

Investor and his family get citizenship of Saint-Kitts & Nevis. Passport of St. Kitts allows visa-free travel to the UK, Ireland and to all EU countries.

Antigua & Barbuda

Donation of $100,000 into NDF or refundable property investment of no less than $200,000 into approved real estate projects.

Citizenship and passports can be obtained in 3 – 5 months with one visit to the country (to take oath of allegiance).

Investor and his family get citizenship of Antigua & Barbuda. Passport of Antigua & Barbuda allows visa-free travel to the UK, Ireland and to all EU countries. During the first five years after the issuance of passports applicants are expected to spend 5 days in Antigua to be able to renew the passports.

Commonwealth of Dominica

Donation from $100,000 to 200,000 (depending on a family composition) to the Government of Dominica.

Citizenship and passports can be obtained in 3 – 5 months without visit to the country.

Investor and his family get citizenship of Dominica. Passport allows visa-free travel to Schengen Area (28 countries), to the UK, and Ireland.

Grenada

Donation of $150,000 into Government foundation or investment of no less than $220,000 into real estate project approved by the Government.

Citizenship and passports can be obtained in 3 – 4 months without visit to the country.

Investor and his close family members get citizenship and passports of Grenada. Passport of Grenada allows visa-free travel to all the EU countries, including the UK and to Ireland. This is the only Caribbean passport that is eligible for immigration to the US through E-2 visa, and also the only Caribbean passport that is eligible to visit China without visa.

Vanuatu

$130,000 for single applicant, $150,000 for investor and spouse, and $180,000 for a family up to four members

This is the fastest citizenship by investment program in the world. Processing time varies from 1 to 2 months.

Investor and his close family members get full citizenship and passports of Vanuatu. Passport of Vanuatu allows visa-free travel to the United Kingdom and to all the EU countries (Schengen Area).

Cambodia

Eligible investment in the amount of 1,250,000,000 riels ($311,000) or nonrefundable donation in the amount of 1,000,000,000 riels ($249,000) are required.

Citizenship and passports can be obtained in 4 – 6 months.

Investor and his close family members get full citizenship and passports of Cambodia. It is possible to change the name.

wealtharabia.net

MOTORING

FROM THE CITY TO THE MANGROVES WEALTH Arabia takes the premiere edition of the BMW X7 out across the varied terrain of the Gulf

MOTORING

he first thing you’ll notice about the X7 is the sheer size of the thing. It’s gorgeous, and massive. It’s bigger than any BMW you’ve seen before—in fact it looks like a BMW that ate another BMW. Of course, for automotive enthusiasts in the Middle East, big cars are not the exception, they’re the rule. In fact, they’re the most desired and widely owned—for the kind of lifestyle that the Gulf demands, a large car that can handle off-road conditions and are also luxurious enough to survive the everyday grind are exactly what drivers here are looking for. It’s no wonder then that the best car manufacturers in the world have made cars that suit that

need. For BMW fans that have been waiting for the legendary car producer to produce something that matches their needs—the X7 is finally here. Once you’re inside, of course, apart from how different it feels to have the level of spaciousness, to have the presence and feeling on the road that this car offers, you’ll receive the level of quality, comfort and familiarity that the best BMWs always have to offer. Deemed an SAV, or Sports Activity Vehicle, rather than the traditional SUV, the car offers everything you’d expect of a BMW along with most things you’re looking for in a larger car. It’s definitely made for a family, but it’s also comfortable enough for even a single person to indulge in. wealtharabia.net

MOTORING

We took the X7 across the UAE, from the busy roads of Jumeirah to the mangroves of Umm Al Quwain, playing with stray dogs and meeting whomever we could. The X7 felt powerful but never felt out of control— it always boasted a smooth drive that still had the strength to muscle forward when need be. With the sea by our side or across the mountains, the X7 seemed purpose-built for the Gulf ’s terrain and way of life. The X7 is the latest in the X lineup, following X1 through 6, and is, of course, it is the largest model in fleet, bringing a fresh sensation of space to the luxury segment, thanks to its open expanses and top-class design of its interior and its state-of-the-art equipment features. At the same time of course,, the advanced powertrain and chassis technology of the X7 ensures it offers all the off-road prowess, excellent ride comfort and agile on-road handling for which BMW’s SAVs are known. Let’s talk the measurables, shall we? The X7 shapes up as 5,151 millimetres in length, 2,000 millimetres wide and 1,805 millimetres tall, and with a wheelbase of 3,105 millimetres. This is clearly the patriarch of the X-family, and you’ll get used to the expansiveness quickly—

getting back into one of a smaller size will feel like something is missing. The front end is prominent, with its exceptionally large BMW kidney grille, giving the car an undeniable sense of presence. The BMW X7 comes standard with LED headlights, while the optional BMW Laserlight carries a high-beam range of up to 600 metres, easily identified by the blue x-shaped elements inside the headlights. From the side, the car’s large windows, high ground clearance and long roofline make it hard to accept this is a BMW, putting it in another class entirely. Horizontal lines, slim LED lights and a two-section split tailgate adorn the rear, fitting the contemporary look of the current BMW fleet. It also follows chrome aesthetic, which isn’t overwhelming but rather comes off tasteful. The car is fitted with 20-inch light-alloy wheels, while fans of bigger wheels can option for the 21- and 22-inch variants can be selected from the options list. When we said it’s a family-ready car, we meant it. The roominess is versatile, offering three rows of seats, which can fit seven. The third row of two seats isn’t anything to sneeze at either, complete with full-size seats complete with armrests, cupholders and their own USB ports. The middle row can be composed of two individual comfort seats as an option as well. All seats are adjusted electrically at the push of a button. The trunk, or boot, depending on your preferred terminology, capacity can be increased from 326 to a maximum of 2,120 litres, as required. The materials, as is expected from high-end BMWs, are top notch The X7 comes with Vernasca leather trim, four-zone automatic climate control, a three-section panoramic glass roof, and ambient lighting including the welcome light carpet and dynamic interior light. Among the highlights on the options list are five-zone automatic climate control, the ambient air package, the panorama glass roof sky lounge, controls with glass applications, the Bowers & Wilkins Diamond surround sound system and the rearseat entertainment Professional system. wealtharabia.net

MOTORING

Meanwhile, the ‘design pure excellence’ equipment line, M Sport package and BMW Individual options allow customers to tailor the interior and exterior design based on their personal style. Under the hood is a powerful engine that still lines up with emission requirements. The line-up of engines available comprises a 340 kW/462 hp petrol V8 in the BMW X7 xDrive50i, a six-cylinder in-line petrol unit with an output of 250 kW/340 hp for the BMW X7 xDrive40i (fuel consumption combined: 9.0 – 8.7 l/100 km; CO2 emissions combined: 205 – 198 g/km) and a pair of six-cylinder in-line diesels with outputs of 195 kW/265 hp in the BMW X7 xDrive30d (fuel consumption combined: 6.8 – 6.5 l/100 km; CO2 emissions combined: 178 – 171 g/km*) and 294 kW/400 hp in the BMW X7 M50d (fuel consumption combined: 7.4 – 7.0 l/100 km; CO2 emissions combined: 193 – 185 g/km). All of the power units in the line-up meet the requirements of the Euro 6d-TEMP emissions standard. All the engines are mated to an eightspeed steptronic transmission, while the task of transferring their power onto either asphalt or loose terrain falls to the BMW xDrive intelligent all-wheel-drive system , which comes complete with optimised efficiency and rear-biased set-up. Ensuring even more dynamic handling is the M Sport differential at the rear axle, which brings electronically controlled locking. It is fitted as standard on the BMW X7 M50d and as an option on the BMW X7 xDrive50i and BMW X7 xDrive40i. The BMW X7 boasts a wealth of chassis technology as standard, including Adaptive suspension with electronically controlled dampers, and air springs at both axles. The vehicle’s ground clearance can be varied by up to 80 millimetres to suit the situation at hand, by either pressing a button or using the BMW Display Key. A number of chassis systems are available as options to further enhance comfort, agility and off-road performance. Integral Active Steering and the Executive Drive Pro 42

system with active roll stabilisation deliver even more nimble handling and greater poise. An Off-Road package is also available for all model variants aside from the BMW X7 M50d. This package includes an extra button for choosing between four driving modes – xSand, xGravel, xRocks and xSnow. These modes prepare the car for the surface in question by activating the ideal settings for ride height, the xDrive system, accelerator and transmission responses, and DSC inputs. Everything in the car felt built for 2019, further underlined by the comprehensive array of driver assistance systems on hand built to enhance comfort and safety. As well as the active cruise control with stop & go function, drivers can also opt for the driving assistant professional package, comprising the Steering and lane control assistant, lane change warning and lane departure warning, the lane change assistant, the lane keeping assistant with side collision protection, the evasion aid, crossing traffic warning, priority warning and wrongway warning, and the emergency stop assistant, which comes standard with the standard parking assistant’s range. Let’s keep getting technical here— the BMW Live Cockpit Professional comprises a fully digital instrument cluster and a Control Display, each of which have a screen diagonal of 12.3 inches. The BMW Intelligent Personal Assistant included in the operating system from March 2019 presents the latest digital connectivity. Once activated with the spoken prompt ‘Hey BMW’, the digital companion helps the driver to utilise the car’s functions, add that to your repertoire with Siri, Alexa and Google. In addition, the system will continue to acquire new capabilities all the time thanks to updates transmitted seamlessly via remote software upgrade. While some may op for the opulence of the Rolls Royce Cullinan, we’re anxious to get the X7 back on the road again, perhaps driving off in a different direction on the UAE’s roads and seeing where it takes us. We’re sure you will be too.

MOTORING

wealtharabia.net

ART

Michelle Poonwalla at her home, admiring her latest works.

ART

BUILDING YOUR SACRED SPACE Michelle Poonawalla walks WEALTH Arabia through her home, revealing her history as an artist

erhaps it was fate that Michelle Poonawalla would find success in the art world. After years as a successful philanthropist and businesswoman, Poonawalla has found international success as an artist, following in the footsteps of her legendary grandfather, Jehangir Vazifdar, whose art and architecture are still legendary in Mumbai and beyond long after his passing. While the iconic buildings he designed are more visible, his contributions as an artist gained new prominence with the publication of Jehangir Vazifdar â&#x20AC;&#x201C; Artist and Visionary in 2016, bringing renewed appreciation for his contributions to South Asian art. Since then, Poonawalla, the wife of billionaire Yohan Poonawalla, has seen her global profile as an artist skyrocket-even gifting a piece to Prince Charles wealtharabia.net

ART

to celebrate his birthday. She had her first show in 2016 at the Gateway School in Dubai and by 2017 she launched Khushi - India On Canvas in conjunction with Sotheby’s, New Delhi, 2017; India Art Story, Kolkata, 2017; Elephant Parade Jaipur, Delhi, Mumbai and London, 2017 and 2018; What If You Fly, a solo exhibition at Vis A Vis Gallery, New Delhi and Spazio Gallery, Pune, 2018; Moving into the Future – Harvest 2018, a group exhibition at Stainless Gallery, New Delhi, 2018; and a project at the Parma Art Fair, Italy with Gallery Marco Antonio Patrizio, 2018; Born Free at Jehangir Art Gallery, Mumbai, 2018 and Introspection, a collateral project at Kochi-Muziris Biennale 2018. Though she is an accomplished painter, Poonawalla, who splits time between the UAE, the UK and India, has ventured outside her more traditional art as of late, presenting her latest her multimedia project, Introspection, as a part of the guest projects at 42 Alserkal Avenue Dubai during Art Week 2019. The installation was most recently exhibited at the Kochi-Muziris Biennale 2018, Fort Kochi, Kerala, India. Introspection, as a piece, bring together sound and digital mapping to create a pointed commentary on the apathy with which images of violence and displacement are consumed today in endless news cycles. Poonawalla walked WEALTH Arabia through her life, art, and the interior design she has created in order to create, live, and thrive. Could you tell me about the space in which you work? I have a wonderful, sun-lit studio in an annexe on our family property. I designed the studio myself, to make sure it was exactly what I had in mind – lots of natural light and a leafy vista to inspire me. I have a comfy leather Chesterfield couch that I can sink into with my sketchbook and enough space for my canvases and easels. Sometimes my kids join me for an afternoon of painting, which is always special. My studio is definitely my sacred space. 46

Poonwalla's art adorns her home, which also serves as her primary studio.

ART

When did you first fall in love with art? Art has been an integral part of my life for as long as I can remember. Growing up in London, I remember frequent visits museums, galleries and auction houses, getting to know the rich history of art from across the world. I studied Interior Design at university but made sure I kept my connect with art alive. Another major influence was my grandfather, Jehangir Vazifdar, who was a prolific architect and artist. He encouraged the artistic fire in me and I’m honoured to carry on his legacy. How has your artistic expression evolved? My artistic expression has evolved from a more classic oil on canvas style to more digital technology-driven, large-scale installations. The strong visuality in my work continues across mediums. I started picked up my paint brushes after being inspired by my grandfather, who passed on his very special technique of oil painting to me. In his memory, we launched a lovely coffee table book and hosted an art exhibit of his works in Mumbai in December of 2015.

The process of putting the book together made my become aware of the legacy I had been left and I had to something about it. In 2016, I had my first show was with a group of special needs children at the wonderful Gateway School (Mumbai). We picked the theme of Spring and Summer, which is where the butterfly motif I often use, first came about. A few months following, I began working on my first solo show in New Delhi, where the curator Swapan Seth encouraged me to explore the butterfly theme and push the boundaries of the medium I work with. The show ended up carrying 3D paintings, sculptures and digital art. With the project Introspection at the Kochi-Muziris Bienalle 2018, I went for a large-scale, immersive art installation. The process of working on such a scale has been tremendously exciting. What do you find most fulfilling about each of the approaches you take to your work, be it multimedia or oil painting? My art practice is an amalgamation of the traditional paint on canvas style with experimental digital technology, wealtharabia.net

ART

particularly digital video mapping and motion sensor technology, to create interactive works. Working as an artist with technology gives me the freedom to dream and make my viewers dream. I always believe, what you ‘feel’, you remember. I want people to question the future, and I can use art to have a lasting impact on human beings and pass powerful messages to all my spectators— universally, be it any country, any race. What inspired your latest work? ‘Introspection’ was born as a sense of discomfort and unease with the way images of violence are consumed today. I wanted a relevant, powerful and universal subject. Inspiration came from all around, from world news, from relevant subjects and even everyday life. Having grown up between England and India, universality is

Poonwalla's installation at Al Serkal Avenue in Dubai in 2019.

a part of how I see humanity. As a family, we travel extensively and an issue that has been bothering me is the atmosphere of fear in the world today—the terror, violence, bloodshed. It has become so commonplace to hear about these terrible events that we’ve almost grown immune to this news. I wanted people to stop and introspect—is this future we want to leave behind for the next generation? What struck you about the art scene in Dubai? Dubai has a tremendously dynamic art scene, with a discerning audience. It was an absolute pleasure to a part of Alserkal Avenue’s guest projects programme during Art Dubai 2019. Alserkal Avenue is a great ‘art hub’ and Introspection had a very positive response. The internationalism of

Dubai makes it a great city to support and understand innovative art. What are your thoughts on the current art world overall? The art world is definitely moving towards work that experiments with technology, which is really the aesthetic of the future. The younger generation needs art that excites them and nothing resonates with them more than technology. Classical art is now being brought alive to this generation with immersive technology. Generation Z is born in the digital era and what inspires them must speak their language. Art today has gone beyond the canvas in a digital, virtual and experiential world. That is the future that will keep the younger generations interested in the rich legacy of art.

WEALTH ARABIA

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EVENTS

Join us at Mina Aâ&#x20AC;&#x2122;Salam on 19 November

fter a successful event that brought together people from across the retail 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 Mina A'Salam, Madinat Jumeirah 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. This year's Summit, in addition to a focus on the latest trends affecting invesment and how investors can respond, we will be focusing on technology in a separate session, allowing us to dig deeper in one of the most important subjects on investors' minds. The WEALTH Arabia Summit was begun with the idea to be a candid platform for the worldâ&#x20AC;&#x2122;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.

DIFC THE BEST OF BOTH WORLDS

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