The results show that Middle Eastern debt issuance reached $14.2 billion during the first three quarters of 2011, down 36% from the corresponding period last year. Investment grade corporate debt accounted for 68% of all Middle Eastern DCM activity during the first nine months of 2011.
.
The analysis found equity capital markets (ECM) issuance had reached $8.9 billion during the first three quarters of 2011, a 68% increase compared to the corresponding period in 2010 when volumes reached $5.3 billion.
The review examines the performance of the Middle East investment banking industry in the region’s debt and equity capital markets, both conventional and Islamic. It includes dedicated regional rankings of banks and advisors operating in the Middle East based on their deals and fees.
Although equity issues were up 68%, this failed to lift overall investment banking (IB) fees, which declined 35% from $483.8 million in 2010 to $316.6 million for the same nine month period in 2011. Fees for Mergers and Acquisitions (M&A) totaled $165.1 million during the first three quarters of 2011, down from $277.48 million during the same period in 2010.
DCM fees dropped 45% to $54.5 million, year-on-year for the first three quarters, while fees from syndicated lending and ECM totaled $33.3 million and $63.7 million respectively. Goldman Sachs topped the M&A fee rankings during the first three quarters of 2011 with $14 million.
“Combined ECM and DCM fees now make up 37% of total fees, with M&A activity accounting for 52% of that in the Middle East. But the gap is closing, revenue from M&A fees has now dropped 41% year-on-year,” Russell Haworth, Managing Director, Middle East and Africa at Thomson Reuters, said.
Middle East M&A activity reached $7.8 billion, a 48% decrease compared to the first nine months of 2010 when activity totaled $15.1 billion. Real estate is still the most targeted industry in the Middle East with $2.3 billion, 30% of the activity down from $4.5 billion during the first three quarters of 2010.
The United Arab Emirates is the most active country in the Middle Eastern with $2.3 billion, 30% of overall activity, but down from $4.5 billion during the same period in 2010. BNP Paribas topped the Any Middle Eastern Involvement M&A ranking with $10.1 billion, with Goldman Sachs in second place with $9.3 billion. Bank of America, Merill Lynch, Credit Suisse, HSBC and JP Morgan all shared top spot in the Middle Eastern target M&A rankings.
In the equity capital markets issuance follow-on accounted for 62% of quarterly activity, while the top Middle Eastern ECM transaction was $3.5 billion follow-on from Qatar National Bank (QNB). Financials was the most active industry (75% of all activity), with real estate, materials and energy and power, together accounting for 21% of ECM activity. Al Rajhi Banking and Investment topped the Middle Eastern equity capital markets rankings, as sole-lead book runners for Saudi-based Jabal Omar Development’s $688 million follow-on offering.
Islamic bond financing activity in Q3 was down 34% compared with Q3 2010 and down 58% on the second quarter. The top Islamic issuer is again Malaysia with 76% of the activity. Issuers in the financial sector accounted for 70% of the DCM issuance in the Middle East during the first three quarters.
HSBC retained the top spot in the Middle Eastern bond ranking over the first three quarters in 2011, with eleven issues, which raised $2.2 billion, while CIMB Group controlled nearly 25% of the Islamic bond market during the same period.
Global investors see Greek government default inevitable
Global investors appear to be coming to terms with the prospect of a default by the Greek government, according to the BofA Merrill Lynch Survey of Fund Managers for October.
Around 92 percent of the 199 respondents to October’s global survey believe that Greece cannot avoid default. Seven out of 10 respondents predict a default by April 2012. Despite this overwhelming consensus, investors are less worried about sovereign risk than a month ago and less pessimistic about global growth.
EU sovereign debt funding remains the biggest tail risk in investors’ minds, but concern has fallen from September’s highs. While 68 percent of respondents considered it their number one concern last month, only 61 percent take that view in October.
The survey also suggests that the outlook for growth has stabilized and fears of global recession have receded. The proportion of the panel expecting a global recession in the coming 12 months has fallen to a net 25 percent from a net 40 percent in September. A net 15 percent of the global panel believes growth will weaken in the coming year, down from a net 17 percent in September.
“The survey shows investor consensus has priced in, or hopes for, an orderly default by Greece,” said Michael Hartnett, chief Global Equities strategist at BofA Merrill Lynch Research. “Europe appears back from the brink. But it seems investors are waiting for the all clear from both Europe and emerging markets before committing cash,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Research.
A month ago, the world was shunning Europe’s markets, but global negativity towards the region has eased. A net 7 percent of the panel says that the Euro zone is the region they would most like to underweight in the coming 12 months, down from a net 40 percent in September. More investors, a net 8 percent, would most like to underweight Japan in the coming year.
A net 29 percent of asset allocators are currently underweight euro zone equities, down from a net 38 percent in September. Sentiment towards the UK has also improved. While a net 26 percent were underweight U.K. equities a month ago, that figure fell to a net 12 percent in October.
Within Europe, however, investors have become more concerned about the macro economic outlook. A net 37 percent of respondents to the European regional survey expect a recession in the coming 12 months, up from a net 11 percent a month ago.
While some indicators show sentiment improving this month, risk aversion remains at or close to September’s highs. Average cash balances have increased month on month to 5 percent of portfolios, up from 4.9 percent in September. A net 39 percent of asset allocators are overweight cash, 36 percent a month ago.
A net seven percent of asset allocators are underweight equities, more than September’s level of 5 percent. Emerging market equities has seen a steep fall in popularity. Only net 9 percent of asset allocators say they are overweight emerging market equities in October, compared with a net 30 percent in September. A net 47 percent of regional fund managers predict China’s economy will weaken in the coming year, up from 30 percent last month. The panel has also moved slightly underweight commodities having been slightly overweight in September.
With emerging markets and commodities losing favour this month, only one cyclical investment remains popular. Technology retains its position as the world’s favorite sector. Pharmaceuticals and staples, more defensive investments, stand at two and three respectively. Allocations to technology increased month on month. A net 39 percent of the panel is overweight the sector, up from a net 35 percent in September.
A second sign that risk appetite might be stirring among some investors is that bearishness towards banks has fallen sharply. A net 34 percent the global panel is underweight banks this month, down from a net 47 percent in September.