Huge proportion of expatriate wealth is not staying in region

By Cleofe Maceda, Senior Reporter

People prefer to invest in their home countries where they plan to return

Countries in the Middle East such as the UAE, Saudi Arabia and Qatar are considered among the leading wealth hot spots for expatriates. People who move to the region for work are making more money than many of their counterparts in other markets.
But while the region may be home to many individuals flush with liquidity, a huge proportion of expatriate wealth is being repatriated. As soon as they raise enough funds, expatriates typically place their money in real estate and investment products that pay out in their home country, not in the UAE.
Others tend to go for insurance-linked investments and make cash deposits in countries with government-backed deposit protection schemes, or opt for exchange-traded funds, government funds and other asset classes like commodities. Topping the list of expatriates who show the strongest desire to repatriate their wealth are non-resident Indians (NRIs), followed by Arab and Western expatriates.
There are many factors, which include strong cultural ties and market knowledge, that drive expatriate investors to heed the call of home. Experts say people normally prefer to invest in more familiar territories that use a language they understand well and follow laws to which they are accustomed.
Role of currency
Currency plays a big part. Expatriates from the UK may prefer sterling if they intend to return home, while Indians would rather have rupee-based investments. Other people want to avoid Sharia Law implications, especially if they are non-Muslim. Besides, there are no long-term visa options for expatriates in this part of the world, and the investment market is still relatively new, so those with investment funds tend to look for opportunities elsewhere.
Another underlying reason is remittances are often tied to payments on loans and houses back home and the investment component tends to be an extension of that, according to Shailesh Dash of Al Masah Capital. "Also, there is a sense of familiarity for many expatriates, whereas regional investments can be fickle in nature due to the temporary residency factor," Dash says.
"It's partly down to fam-iliarity and partly down to necessity," notes Reza Nader-Sepahi, board advisor of Nexus Insurance Brokers. "Most plan on retiring back home, not least due to the presence of their immediate and extended families, but also the current lack of long-term visa options in the GCC region."
Managed funds hold key
The trend isn't surprising for Clem Chambers, CEO of ADVFN.com, a financial stocks and shares information site. He says people choose to invest at home for the same reasons they want to eat their home country's cuisine and follow its sport. "They will probably end up going back home one day. It is the animal attraction of the motherland."
"Typically, property buyers will invest in property in their home country before looking to buy here. In terms of investment, there are companies from overseas which are registered in the UAE also, and expatriates are happy to deal with these for investments. They prefer to deal with household names from their home countries," observes Steve Gregory, managing partner at Holborn Assets.
He says people tend to favour products which offer tax advantages in their home country, both when abroad and when they have returned to their home country. Local products may not offer such advantages. "For life insurance, policyholder protection is enshrined in law in many countries, and expatriates prefer contracts that are protected," he says.
The Expat Explorer Survey, which questioned more than 4,100 expatriates in 100 countries last year, revealed foreign workers in the Middle East are the most likely to repatriate their property wealth, with very few investing in their host country's real estate. In Qatar, for instance, 49 per cent of expatriates said they had invested in their country of origin and none have done the same in their host country. In Saudi Arabia, 60 per cent said they prefer to invest in their home country.
Expatriates in the region are not the only ones who have a strong home-market bias. Across expatriate destinations, a large proportion of wealth in long-term investments is repatriated, the most common being property (30 per cent), equity (22 per cent) and bonds (11 per cent).
The survey commissioned by HSBC Bank International, however, noted general savings, banks/building society savings and investment into company shares are predominantly carried out within the host country. "The use of offshore centres for saving and investing appears to be underutilised, with the most popular investment vehicles for expatriates being managed funds [16 per cent] and foreign exchange [12 per cent]," the report said.
A more recent study by Invesco Middle East confirms when it comes to investing, many people indeed have a strong preference to invest outside the GCC. "Our findings have highlighted a strong appetite for international investing across expatriate segments in the GCC," says Nick Tolchard, head of Invesco Middle East.
NRIs have the highest home-market bias among expatriates at 31 per cent (preferring India), followed by Arab expatriates at 27 per cent (focusing on Mena) and Western expatriates at 22 per cent.
Invesco says various reasons appear to drive expatriate home-market bias. Simplicity along with portfolio hedging are frequently cited for the Western expatriate segment, while investor affinity — the desire to invest in their own home market because of cultural ties or market knowledge — is commonly cited by NRIs, with many wealthy GCC-based Indians owning investment properties and regularly trading local stock market portfolios in India.
James Thomas of Acuma Wealth Management says the majority of their clients are British expatriates and they generally pick markets outside the UK. This is to avoid potential tax issues in the UK and gain exposure to opportunities around the world. "Generally, any investment would be centred in an offshore location that has good legislation, such as the Isle of Man, the Channel Islands or Luxembourg, but clients are happy to consider investing around the world."
He, however, agrees expatriates prefer to invest outside the GCC. "I believe this is because the GCC is regarded as a frontier market. It is a relatively new market, with only a short track record of performance, and the rules related to different market segments are still being formulated. Also, the region is quite fragmented, with a number of smaller bourses, making it quite difficult to invest into."