Weathering the Challenges

Looking back on 2022, Khaled Hobballah Senior Country Officer for the MENA region and head of Markets for MENA and Turkey at J.P. Morgan, provides an upbeat assessment of how the region’s financial, and it’s wider markets have performed during a year filled with many challenges

Khaled Hobballah, Senior Country Officer for the MENA Region and Head of Markets for MENA and Turkey at J.P. Morgan

How has your business benefitted from the economic stability our region has experienced compared to the wider world?

2022 has certainly been a challenging year economically for most regions of the world; from the US to Europe and China. The geopolitical developments, namely the Ukraine-Russia war, have triggered significant disruptions to the global food supply chains and forced a profound rethink of the last 50 years of energy policies of much of the European countries. The volatility in energy prices and the accompanying inflationary pressures have dampened growth in much of the world, and the end of the QE by central banks and recent hikes to tame inflation have further added pressure on asset prices globally. All the above have created headwinds that impact international investors as well as company plans for raising liquidity balance sheets of SWFs and large corporates have helped reinforce the position of regional players looking to expand internationally.

and capital expenditures. Against this backdrop, it has been good to see that the Gulf has remained a region of not just stability, but also strong economic growth. We are long-standing partners to our clients and we continue to advise them across the full spectrum of J.P. Morgan’s products and services. As the GCC countries, especially Saudi Arabia and the UAE embark on ambitious expansion plans, M&A has witnessed a very strong year here with almost $90bn of deals announced YTD’22. This is shy of the $120bn achieved in FY’21, which was the record year regionally, but still higher than the MENA average over the past 5 years. High oil and gas prices have helped so far shield the region from the looming recessionary pressures in the global economy and have encouraged parties to benefit from the current momentum to get deals through the finish line. Additionally, the current liquidity and strong

Did the headline geo-political events of this year greatly change your plans or affect your business experience?

We have been journey partners to our clients in the Middle East for decades, through booms and troughs. Our starting point is acknowledging that headline geopolitical events are always difficult to predict, but this does not mean we cannot be prepared. When advising clients or positioning our business, we always stick true to the tenets of prudent risk management and diversification. Undeniably, the instability we’ve seen on the back of the geopolitical situation in Ukraine, has indeed impacted the region to an extent but we keep our focus and ensure we have the right tools in the box to

help our clients navigate any turbulence. That being said, the overall markets in the MENA region stayed very active and the deal flow very healthy.

Have you noticed much development in the way clients and customers are interacting with their financial services providers this past year?

The pandemic period accelerated many trends that would have previously taken many years to play out. For example, we saw an immediate proliferation and adoption of services of communication channels (MS teams, Zoom, and other) to replace face-to-face meetings when they were no longer possible. This helped us stay close to our clients, who were facing the same situation in addition to the challenges to their business model. This year has seen a normalisation of travel, and while we continue to more frequently use video communication platforms for meetings, clients and bankers alike have shown great enthusiasm for resuming face-to-face interactions where appropriate. We believe that financial services are ultimately based around trust and relationships, and spending the time and effort with our clients have always been an integral part of J.P. Morgan’s core principles. As the GCC by and large emerged as one of the few regions that have managed the pandemic well and with minimal disruptions, we have seen an meaningful uptick in international talent relocating to the region, and financial service providers have expanded considerably their regional presence over the past few years.

Which market sectors have you seen develop as leading trends this year?

For more than a decade, central banks around the world sought a coordinated response to the 2008 Global Financial Crisis. This came in the form of extremely accommodative monetary policies in the developed markets, with interest rates anchored to zero, or in the case of Europe, below zero. Whilst there has been much debate about the inevitability of these measures to help protect the global economy and encourage its recovery, we witnessed as a result a massive monetary expansion, and a corresponding glut of liquidity in the global financial system. This led to massive price increases of investment assets across the board as well as to inflation pressures. We are now on the cusp of a new economic cycle, and interest rates have moved significantly higher again. This is resulting in a sobering but much needed ‘reset’ to the global financial system, and a corresponding impact on global assets pricing; going forward, and unless there is an overshoot by the Fed and other central banks in raising rates that could slide us into a deep global recession, we see attractive

value opportunities across the various asset classes, especially in the fixed income space.

Another key trend we are seeing right now is the emergence of the UAE as a hub for hedge fund activities, due to its infrastructure, internationally aligned regulations and diverse culture. In Saudi Arabia, the capital markets transformation, and the accompanying development and reforms carried out, have led to a substantial pick up of IPOs and debt raising compared to historical data. We’ve witnessed record volumes raised via syndicated loans this year which is expected to translate into further growth and debut of fixed income issuances upon stabilisation of interest rates environment. Huge investment commitment in infrastructure as part of Saudi 2030 vision is translating into positive real growth not just for the Kingdom but for the region as a whole. In terms of sectors - infrastructure, technology, financial services and the broader energy sector have been the most active drivers of M&A deals in the MENA region this year.

What surprised you the most about the region’s banking and financial services market in past year?

The convergence of several factors has led to a surprisingly resilient financial services market this year in the region. Higher commodity prices have led to increased local capex within both the government and private sectors, which has led to a pick-up in financial activity. Neutral geopolitical policies

THE CONVERGENCE OF SEVERAL FACTORS HAS LED TO A SURPRISINGLY RESILIENT FINANCIAL SERVICES MARKET THIS YEAR IN THE REGION

in the context of international tensions have also led to an influx of people and companies moving to Saudi Arabia and the UAE, which is witnessing a boom in the Real Estate market. Policies aimed at further developing and strengthening the capital markets has also led to a pick-up in IPO activity. These have been positive developments for the region as a whole in 2022. We have seen a few international institutions retreat from the market and unwind their investment banking presence. That being said, this has been mostly driven by a re-assessment of their international strategy and is not specific to the region. Others have expanded or are looking to expand their presence in MENA, especially in the GCC, including J.P. Morgan as we continue to see ongoing opportunities in the region.