Nomura Asset Management opens Dubai office as flows to Asia rise

DUBAI, June 11 Wed Jun 11, 2014 8:35am EDT

DUBAI, June 11 (Reuters) - Nomura Asset Management, one of Asia's biggest asset managers, said it had opened its first Middle Eastern office in Dubai after its business in the region more than doubled in the past five years.

Many foreign fund managers service clients in the six-nation Gulf Cooperation Council from bases in Western financial centres such as London. Nomura Asset Management said it had had GCC clients for over 25 years and was now setting up a five-person office to provide a local presence.

The company's Middle East unit currently manages about $7 billion of assets for sovereign funds, banks, pensions and other institutional investors from the GCC. It invests this money mainly in Asian securities markets as well as global fixed income.

Nomura Asset Management, which manages about $300 billion globally, is part of Japanese financial giant Nomura Holdings .

High oil prices mean the Gulf oil producers are earning huge sums, much of which are reinvested abroad. The Saudi Arabian central bank's net foreign assets climbed 9 percent from a year earlier in April to $729 billion.

Traditionally, most Gulf money has gone to Western markets, but growing trade ties with Asia are starting to shift the flows.

"Our forecast is that some time in coming years, on an incremental basis more investment funds from the GCC will flow east than flow west," Tarek Fadlallah, chief executive of Nomura Asset Management Middle East, said in an interview on Wednesday.

A decade ago, tens of millions of dollars of portfolio investment moved from Gulf institutions to Asian markets annually; that volume is now estimated in the billions and it will eventually reach the tens of billions, he predicted.

Appetite for Japanese assets among Gulf sovereign wealth funds is higher than it has been since the mid-1990s, partly because of growth-oriented economic reforms being pushed by Prime Minister Shinzo Abe, Fadlallah said.

Nomura Asset Management operates an Arabian equities fund for Japanese retail investors that was launched in 2007 with a value of $500 million. It is preparing to launch a frontier markets fund that will allocate as much as half of its money to GCC markets, and is expected to total $400-500 million.

For the time being, however, investing foreign money in Gulf equities will remain a minor focus for the company, despite MSCI's upgrade of the United Arab Emirates and Qatar to emerging market status last month.

That is because both markets are still only tiny components of MSCI's global emerging market index, Fadlallah said. Although foreign interest is rising in Saudi Arabia, the Arab world's biggest equity market, that bourse remains closed to direct foreign investment.

"The game-changer, the event that would get the whole world interested in the GCC, would be the opening of the Saudi market. That would immediately create more depth and give exposure to the highly desirable oil and petrochemical firms."

It remains unclear when the Saudi market will open. Authorities are prepared for the reform and it could happen very quickly, but concern about flows of speculative money and foreign ownership of national assets could delay it for a while longer, Fadlallah said. (Reporting by Andrew Torchia)