Investors told they must prepare for volatility with borrowing costs set to rise
After a decade of low interest rates buoying markets, investors should get ready for volatility as central banks in the developed world increase the cost of borrowing, the forum heard.
“From a broad market investment perspective, we’ve been in a unique situation over the past few years with good growth and relatively low inflation, but where the central banks have had to pump a lot of money through the system,” Katherine Garrett-Cox, chief executive of Gulf International Bank UK, told The National.
“As we look forward, clearly that situation is somewhat reversing. Quantitative easing is being withdrawn and given that it was something of an economic experiment, I don’t think anyone can really accurately predict how things will play out in the next couple of years.
“For sure it will lead to greater volatility in the markets than we have seen for a while.”
Investing in ecologically sustainable businesses and financial technology companies will be areas of growth in the future, the forum was told.
Jassim Alseddiqi, chief executive of Abu Dhabi Financial Group, highlighted financial technology companies as one of the industries with the best prospects.
Ms Garrett-Cox said she favoured companies that were underpinned by ecological sustainability and financial services companies that helped to fund small and medium-sized enterprises.
Global markets reached record highs last year amid economic growth, in part aided by years of quantitative easing – or printing new money – by central banks in the developed world.
The S&P 500 index last year put in its best first-half performance since 2013, before finishing the year 22 per cent higher, helped by the continued outperformance of technology stocks.
The MSCI Emerging Markets Index, on the other hand, returned 37 per cent last year.
Volatility in global markets has increased this year amid expectations that the US Federal Reserve, the world’s most influential central bank, will raise rates at a faster pace, and that geopolitical tension from North Korea to Iran will increase.
Mr Alseddiqi said he was optimistic about the way financial technology would revolutionise banking because it can bring in the third of the world’s population that have no accounts and make the cost of transactions affordable to the poorest.
The World Bank said in a report on remittances last month that the cost of sending $200 (Dh734) was 7.1 per cent in the first three months of this year, more than double the 3 per cent target set as a sustainable development goal.
“It took us 600 years to have 50 per cent of the adult population to be banked and it took us six years to reach a point where one third of the world’s population is unbanked,” Mr Alseddiqi said.
“Of the 1 billion people who are unbanked, two thirds have mobile phones. Fintech will access those people at a much faster rate.”
He said that helping to close the SME funding gap would be a boon to the world economy and that financial technology could help to bring about easier access to funding.
As far as the future of money is concerned, Ms Garrett-Cox believed the rise of cryptocurrencies would not mean an end to cash or competing forms of financial intermediation such as debit and credit cards as quickly as some people thought.
She said the speed of dealing in cryptocurrencies was still not as quick as physical money.
Global markets reached record highs last year amid economic growth, in part aided by years of quantitative easing