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Brokerage Challenges…Regional Expertise. Sixth Annual Palestine Capital Markets Forum Palestine – December 11, 2012. Waleed Al-Nassan. Setting The Stage 2003 - 2007. Global The world is coming out of the tech bubble. Strong global economic growth. - PowerPoint PPT Presentation
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Brokerage Challenges…Regional Expertise
Sixth Annual Palestine Capital Markets Forum Palestine – December 11, 2012
Waleed Al-Nassan
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Setting The Stage2003 - 2007
Global
• The world is coming out of the tech bubble. • Strong global economic growth.• Strongly developing real estate finance sector / Investment Banking Boom.
Regional
• Continued strive for openness and deregulation.• Increased levels of FDI across all Arab countries. • American invasion of Iraq, (special impact on Levant region).• Increased commodity prices, (especially oil towards the end for the period).
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2007 - 2010
Global
• Beginnings of the meltdown of the US subprime mortgage market. • Unfolding of the global financial crisis. • Unprecedented declines in asset prices across all classes. • Compete freeze in the global financial system.
Regional
• Economies started to slow (especially non-hydrocarbon related ones).• Lower levels of FDI into the region. • Foreign portfolio investments pressured to leave the region. • Real estate investment across the region starts to decelerate. • Stock market valuations and volumes of trading reached very low levels.
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2010- 2012
• Global economies are trying to deal with the ramifications of the global financial crisis.
• The US has its unemployment and the fiscal cliff to worry about.
• In Europe stronger European economies are being dragged by the ailing peripheral economies (Greece, Portugal and Spain).
• The two fastest growing economies (India and China) are facing major challenges in keeping their economies growing at the time when their major clients economies are not.
• In the MENA region, the Arab Spring started and 2011 & 2012 have been amongst the most difficult years for the Arab capital markets. (Markets were affected in varying degrees)
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• Large scale withdrawal of investors (institutional and retail) from the markets.
• Trading volumes, valuations and number of transaction have been on the decline.
2010- 2012
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MENA Capital Markets Indicators
* 2012 number up to end of November** Source: Arab Monetary Fund Database
2008 2009 2010 2011 20120
200
400
600
800
1000
1200
Market CapitalizationValue Traded
USD
Bi
llion
s
1,200
1,000
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2008 2009 2010 2011 20120
5000000 10000000 15000000 20000000 25000000 30000000 35000000 40000000
Number of Transactions40353025201510
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MENA Capital Markets Indicators
* 2012 number up to end of November** Source: Arab Monetary Fund Database
USD
Mill
ions
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Brokerage Challenges
• Almost all brokerage companies within the region have suffered form the recent developments in the markets.
• All brokers witnessed marked declines to their volumes of trading, income, money under management and above all client confidence and trust.
• Though, some companies were affected more than others. Challenges could be grouped under the following headings:
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Brokerage Challenges• Low volumes of Trading
• Strong competition
• Pressure on fees• Potential for violating market rules by offering rebates
• Fragmentation of the market
• Too many players• Lack of incentives/willingness to consolidate
• Reasonably high infrastructure/ fixed cost
• Minim human resources• Minimum technology infrastructure
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Brokerage Challenges
• Increasing Regulatory Challenges
•Minimum capital requirements• New rules and requirements• Increased burden on surveillance and control • Tighter risk management rules
• Imperfect Market Structure
• High percentage of retail clients• Low level of participation of intuitional clients•Weak role of local investment funds industry • The virtually inexistence of long-term private saving and retirement
plans/funds
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The Way Forward
Given all the challenges said, Brokerage Companies have to decide on their course of action.
• It seems that brokerage companies have to choose one of two options:
stick to their business or leave
• They need to tackle a number of fundamental issues:
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The Way Forward
• Where is my customer base?
• Customer segmentation• Focus on core groups• Look for untapped segments
• Proper targeting and offer access to new investment opportunities
• Improving back office and trading platforms•Offer research or access to research • Adopt a proactive strategy •Make use of cross selling (in case of strategic partnerships)
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The Way Forward
• Regional and Global Exposure:
• Develop networking relationships and partnerships with regional and global brokers
• Offer professional market inelegance and market access
• Proper positioning of your capital market in the relevant segment (frontier markets)
• Continuous access to company managements within you market
• Continuous follow up and update for clients with local developments Source: Regional markets Challenges & Opportunities, Forum Finance, Bain & Company
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Should we be Optimistic?The answer is: yes
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Should we be Optimistic?The answer is: yes
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Should we be Optimistic?The answer is: yes
Source: KIPCO, company presentation.
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Thank You