Low oil prices, geo-political instability and lower government expenditure are the three most important economic issues for the region in 2016, the sixth annual CFA Middle East Societies Market Sentiment Survey revealed, with respondents noting that revenue diversification strategies will also play a significant role in market performance. One third (33 percent) of investment professionals who participated in the survey said that regional inflation will increase with the introduction of value added tax (VAT) in 2018, while 28 percent stated that this development will increase the cost of doing business. The overwhelming majority of respondents – 82 percent - expect debt raising activities to increase, while 64 percent gave Bahrain and Saudi Arabia's equity markets the most negative outlook in the region, with Dubai faring the best. Bader Alissa, CFA, President of CFA Society Saudi Arabia, said: "Investment professionals in the MENA region are perhaps less optimistic than their colleagues in other markets elsewhere in the world. The biggest issue for investment management professionals in the region will continue to be oil prices, as 71 percent of our members have revealed. We are entering a unique period in the GCC's economic cycle, where dependence on oil revenue and government expenditure will decrease and we expect to see more strategies in place to create more diversified sources of revenue." "An interesting theme to have emerged this year is improved transparency of financial reporting and other corporate disclosures; 62 percent of respondents felt that this would have a beneficial impact on investor confidence across regional markets. A quarter also highlighted that enhancing the transparency of investment decisions and accountability would be the most important factor in establishing a positive sentiment within the investment industry." Top 10 key findings: 1. The introduction of VAT will increase inflation rates across the GCC, according to 33 percent of respondents. Over a quarter (28%) also expressed the concern that it will increase the cost of doing business. 2. Employment opportunities for finance professionals in the GCC will continue to decrease in 2016, according to 63 percent of respondents. With banks and other financial institutions announcing job cuts, CFA members believe that this trend will continue as the job market worsens for finance professionals. 3. Market conditions will lead to business consolidation for organisations, according to 32 percent of respondents, some of whom also stated that a cycle of slowdown is likely to be a common experience for businesses during this time, although 23% believe that growth is still possible. 4. Low oil prices (71%), geo-political instability (44%) and lower government expenditure (45%) will be the most important economic issues over the next 12 months. Decreased economic growth rates will continue as a result of the low oil prices and political volatility according to 23 percent of respondents. Efforts to diversify revenue streams and lower dependence on oil have also been identified as a significant issue for the GCC over the coming year. 5. Fifty four percent expect further declines in the sovereign credit ratings of GCC countries. 6. Increased debt raising activities across the market are anticipated by 82 percent of respondents. 7. Equity markets in Bahrain and Saudi Arabia will be the most affected markets in the GCC, according to 64 percent of respondents. Dubai was rated as the most positive in terms of outlook, with 35 percent of respondents confident of strong performance. 8. The same proportion of CFA professionals believe that investor confidence is as low as it was during 2008/09 as those who believe that the overall sentiment is currently more positive (29% and 28% respectively). 9. Almost all respondents (91%) believe that it is important for GCC nationals to undertake professional qualifications because it is vital for the regional economy to have a local population with internationally-recognized credentials, which currently is not the case. 10. The outlook for the euro will continue to be negative over the course of 2016, according to 48 percent of respondents. The euro zone's economic and refugee crisis could be a catalyst for the poor performance of its currency according to CFA members. Additionally, 42 percent feel the same way about the British Pound due to the looming threat of a Brexit. The survey results were unveiled at a media roundtable a day ahead of the 2016 Middle East Investment Conference (MEIC), which took place in Bahrain for the second time Wednesday (April 13, 2016). — SG
