The geopolitical situation in the Middle East remains very troubling, with Islamic investors keener than ever to invest overseas. While the UK press is keen to highlight instances of Middle East sovereign wealth funds realizing profi ts on overseas real estate investments and repatriating such monies home, those without a government spending plan to meet are wanting to diversify out of the region. Recently returning from a trip to Malaysia, the mood there is thankfully calmer and more focused on the ringgit, which with litt le fanfare has been gradually appreciated against the pound sterling. While far from the RM5 (US$1.19) per pound (US$1.45) of 2012, it is at least back under six, the first time since the summer last year.
Could such relative stability encourage Islamic monies to start flowing west again? Meanwhile, the benchmark interest rate swaps on which profi t rates are based have been falling rapidly. Having peaked at the end of 2015 in the US, with the market anticipating further increases, and in mid-January in the UK, such rates are now substantially down. While the banks may increase pricing slightly to accommodate their fears of the world economy, total costs must almost certainly be down. And these global economic challenges are the ones that are leading many investors to rethink their previous move up the risk curve. As I have been saying for a while, the world is slowing down.
Governments are more fearful of deflation than inflation and some commentary has even suggested that the US may be forced to backtrack on their recent interest rate increase. Attractive current returns are available to investors on long leased properties let to strong covenants and it would seem that Islamic investors are adopting the classic British phrase of “Keep Calm and Carry On”.
Our own 90 North has already closed two property investments with Saudi and Kuwaiti equity partners this year in the UK. Meanwhile, Investcorp recently announced a number of offi ce and industrial investments in the US. Revisiting my statement at the end of 2015 that I was optimistic for 2016, I remain so, but would encourage Islamic investors to treat opportunities based on significant value added with some caution. The primary focus for most would be protection and the relative enhancement of wealth.