"The Israeli market has substantial growth potential, even though Israel long ago ceased to be a developing market, but rather a developed market. We at UBS look at Israel as a market with great potential for business development for our wealthy clients," Hendrik Geldenhuys, UBS Wealth Management Head of the Central and Eastern European Division (which includes Israel) told "Globes."
Geldenhuys (54) has served in senior positions at the Swiss bank for almost 30 years. For the past three years, he has been responsible for the bank’s wealthy clients in Central and Eastern Europe, and, for the past year, for Greece and Israel as well. "There have been great changes in recent years in the markets for which I am responsible for. We now see many new start-ups and high-tech companies in places like Russia, Latvia, Poland, the Czech Republic, and Slovakia, which was not the case several years ago. We are in a new world with many challenges," he says.
In your opinion, what is going to happen to the EU in the coming years? Growth there has strengthened lately.
Geldenhuys: "That’s true. The economy is improving, but the main risk in Europe is political. There is a paradox: economic data and growth are improving, so there should be increased investment in stocks; but, conversely, because of the political risk, we advise clients not to do that, but to keep an ‘Equal weight’, to stay neutral, on Europe - in other words, to invest there proportionately to the EU’s weight in the global market. By the way, we do not expect shocks in the EU this year; that is the key scenario."
What do you tell people who currently keep a lot of cash in their accounts?
"Today, with the interest rate in Europe still negative, some of them should realize that they will have to pay money to the bank at some point for the cash that they are keeping. The same is true for clients who hold money in government bonds with a negative yield. This is not an easy educational process, and many people have not yet grasped the current financial environment, even it has been a while since some central banks switched to negative interest. Some investors are transferring money to other long-term investments, such as private equity funds and hedge funds."
What about real estate?
Real estate yields have fallen sharply compared with preceding years, but as long as the interest rate is so low, the positive investment flow into real estate will probably continue in the coming years. Many people are also investing in REITs and through buyer groups. Investment in real estate has its own characteristics, and is different from investing in securities, in terms of liquidity and investment period, for example."
The US rally will continue
Despite the huge rally in US stock markets in the past eight years, UBS believes that there is still room for a further upside. The expected interest rate hikes by the Federal Reserve Board this year and in 2018 are not expected to strengthen the dollar against the euro, or to affect the rally in US stock markets.
Are you concerned about possible declines in US stock markets?
"No. We give them an ‘Overweight’ recommendation."
Why?
"Despite the relatively strong rally in recent years, there is still growth potential, mainly because of expectations of higher corporate profits following the policy measures Trump is expected to carry out, and other factors. High US corporate bond yields also reflect the potential for profits."
What do you think the Fed will do this year and in 2018?
"The Fed’s leaders are trying to create a stable environment and to manage traders and investors’ expectations without shocks, and they are doing a good job. There will probably be two more interest rates hikes of 0.25 percentage points each this year, and two or fewer rate hikes next year, but that of course depends on the economic data which will be published during this period, market behavior, and inflation."
What do you expect for the dollar-euro exchange rate?
"We believe that the euro has growth potential against the dollar, partly because the Fed’s interest rate hikes will not be higher than expected, and might even ease. The European Central Bank (ECB) is also likely to change its policy at some point, which we think will only happen in 2018."
"Israeli investors have knowledge and experience"
Are there differences in the approach of Israeli investors compared with investors in other countries?
"It seems to me that Israeli investors have much more knowledge about how to work with foreign banks and manage assets through foreign banks, such as in Switzerland, for example. Israeli investors check thoroughly and demand good value and service for the money they invest. They have much more experience compared with investors from Central European countries and Russia.
"Compared with Eastern Europe, Israeli financial regulation is much clearer, and it is possible to plan for years in advance. In Russia and Central Europe, there are pressure groups which pull in different directors, making it almost impossible to predict what will happen in a year or two.
"The Russians are trying to push financial and tax legislation, which will bring them closer to what is going on in the West. We’re seeing progress there, but they still have a long way to go. A substantial part of our time is spent on explanations and helping our clients to navigate within the constantly changing regulatory world, especially in the past few years, in Russia and almost everywhere in the world, in fact."
What is the Russian market potential for you?
"We estimate that there are between 100,000 and 140,000 wealthy Russians to whom UBS can offer services. It is a constantly changing and developing economy. They’ve had a hard two years because of the plunge in the price of oil and other factors, but we’re now seeing more and more people getting rich and generating income from other sources, such as real estate, high tech, finance, and retail. The Russian economy is recovering and a large middle class is starting to form there, but it will take time."
Are there differences in the management of capital by young people, who made an exit or had a large inheritance, compared with their parents’ generation?
"Yes. You have to realize that approximately $2 trillion will be transferred by inheritance to the young generation from the older generation in the US alone over the next ten years, and many young people wish to contribute to society in addition to obtaining decent yields on their money. That is why they are also investing in smart philanthropy or in businesses such as clean energy, healthcare, and biomed, where there is potential to contribute to society in addition to the investment.
"There are quite a few people who have received an inheritance and do not want to pursue their parents’ business; they take the money and try to start a new business, sometimes in a different country. So we naturally try to offer them different investment options, including those that have a positive impact on the environment and society, to help them not waste the money but to properly manage and invest it. We’re also seeing more and more wealthy women who have obtained their wealth in various ways - inheritance, building a business, or an exit - and they often have an altogether different approach to life in general, and to investment in particular, compared with men."
Hendrik (Riki) Geldenhuys
Position: Head of the Central and Eastern European Division, UBS Wealth Management
Age: 54
Seniority: 29 years at UBS
Location: Zurich, Switzerland
Education: Masters Degree in Economics and Business Economics from Stellenbosch University in South Africa
What UBS thinks about the different investment classes
Currencies: The euro will strengthen against the dollar.
Interest rates: The Fed will make two interest rate hikes this year.
The Eurozone economy: Growth will pick up, but there is political risk.
US stocks: An "Overweight" recommendation.
High-yield US corporate bonds: An "Overweight" recommendation.
Published by Globes [online], Israel business news - www.globes-online.com - on April 23, 2017
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