Foreign investor outflows from Gulf Arab markets during recent political unrest have been significantly lower than those seen during the financial crisis, the regional head of custody at HSBC said.
Stock markets in the region have been pretty resilient to political turmoil, signalling a positive tone among investors, said Arindam Das, who is also deputy head of the UK lender's securities services for the Middle East and North Africa (MENA) region.
"I have seen far less money going out of markets here than what I saw during the financial crisis. Maybe the reason that money is not flowing out is in anticipation of something good that will happen," Das said in an interview last week.
Most Gulf Arab markets have shrugged off initial losses when unprecedented political unrest in countries like Egypt and Bahrain led to stock market sell-offs. Dubai's flagship index, for instance, has risen over 12 percent in the last month. "The regional unrest could have had a far bigger impact on the markets than it actually has had," Das said.
Improved settlement systems in countries like the United Arab Emirates (UAE) and Qatar will result in more interest from institutional investors, the executive added. Gulf markets have been traditionally dominated by retail investors who tend to follow a herd mentality, resulting in panic-driven selling when negative events unfold.
Bourses in Qatar and UAE have announced plans to implement the global standard Delivery Versus Payment (DvP) settlement system, seeking upgrades from index compiler MSCI which could attract index funds. "The fundamental infrastructural changes that are happening now, like the DvP, will address some of the risk concerns conservative institutions will have," Das said in the interview.
The executive said HSBC, which handles about 25 percent to 30 percent of all the institutional money flow in the region, was now turning towards local institutions in the region to boost its business. Among the local institutions, the bank is mainly focusing on mutual funds and family offices, Das said.
At present about 80 percent of clients are foreign institutions and the remaining are local firms, Das said, adding some long-term conservative institutions have opened custody accounts recently without naming them. "I have seen some big names who hadn't opened accounts earlier, opening accounts now. It's a positive sign but it's not enough to conclude that money will start pouring in," he said.
A bank offering custodian services usually holds and manages a client's securities or other assets on their behalf for a fee. The main objective is to reduce the risk of a client losing assets or having them stolen.
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