Villamin was talking to the Arab Times along with Shawn Mofidi, who is the bank’s Executive Vice-President and Team Leader, Middle East, Wednesday.
The Coutts’ executives were in Kuwait to announce the bank’s expansion goals in the Middle East and the plan to hire 20 staff across the region this year.
Dwelling on the crisis, Villamin said it is one of excess leverage and the asset prices were too high, going into 2008. “The asset prices have fallen since then, but the leverage still remains. Ten years ago, the world was dependent on the US consumer as the main growth driver and now we are left without that driver. So, we will see fairly low growth around the world.
“China is growing at 8 percent now, but it used to grow at 10 percent. And the impact here in the GCC will be the same.
“So, the challenge facing the GCC will be on reconfiguring its economies to adjust to this lower-growth world with less reliance on external demand.”
Villamin advised the GCC investors to know that it’s going to be a very challenging environment. “Volatility will be high. Return expectations need to be much lower than before. If it was 15 percent previously, now you should only hope for mid to high single digit returns within portfolios.”
When asked to weigh the impact of a weakening Euro on other asset classes, Villamin said Euro’s weakness is a necessary result of the repair of Euro. “Currency depreciation is a way to shift some burden, and will take some pressure off austerity measures within Europe.
“This will be better for some real assets in Europe.” Villamin added that we should expect the ECB to engage in quantitative easing by printing money to continue Euro’s weakening.
The investment officer saw this situation leading to strengthening pressure on the currencies of emerging markets, “and that’s the trend that clients should be focusing on and find ways to capitalize on.
“The other thing a weakening Euro will help is gold. Gold has had a very substantial position in our portfolios in the last two years. It is also a good opportunity to equity positions in people’s portfolios.”
When asked about the preferred asset class in this region, Villamin said that investors need to be international about their investment options and look where the best risk reward is.
“Kuwait has a big appetite to understand opportunities in the US, Asia and Europe. We are seeing great opportunity now in corporate credit.
“Right now government balance sheets are looking pretty bad in the west, but corporate balance sheets, whether in the US, Europe or Asia, including GCC, are looking good. And you are being paid extra to take on that less risk. So, we are quite keen on the hybrid corporate markets.”
To a question on the merits of interconnected markets, and what lessons can GCC that is mulling economic unification take from the EU, Villamin said the strength of interconnected markets is that by accessing one country you could access demand in them all. “The EU was connected from a demand perspective.
“But it was also connected from a fiscal perspective. So you had some parts of the EU, like Spain and Italy, who were not as disciplined as Germany, for example. This led to big imbalances building up within the EU, which has culminated in what we have today.”
“However, the EU made progress from a regulatory perspective. So you don’t have a situation where banks in Spain are regulated meaningfully different from banks in Italy. They have a broader European regulator for that.” Villamin pointed out the failure of EU to synergize labor, leading to cost differentials.
“So, if GCC is thinking of an economic unification, it should include a broad range of economic aspects.” He advised that GCC take it slowly and not hurry it through.
On the subject of Iran, Villamin said that if Hormuz Strait were to be closed down, the immediate implication would be global oil prices. “The real risk will be that the global economy will not be able to generate enough growth to allow the US or Europe to play down all the leverage that has built up in the last few decades.
“Any shock to the global economy, whether it comes from Iran closing Hormuz Strait, or Greece leaving the EU or a hard landing in China, will create a huge problem for the global economy, and raise the risk of returning to a 2008-style problem.”
“Iran crisis is the biggest threat at the moment because of the flow-on effect it could have on the EU, which could push European banking system deep into crisis.”
When asked about his stance on the debate of recapitalizing banks in Europe, Villamin noted that when you look at crisis-hit countries that have done well you will see that a couple of tools have been used to facilitate that.
“One was recapitalizing the banking system. Banks are an integral part of the global economic system, and not having a well capitalized banking system can affect the entire economy. That’s one piece of the bubble; the other is that you have to have a sustainable demand driver.” In Europe, fiscal stimulus will play the role of demand driver, Villamin noted.
Shawn Mofidi said that Coutts has been in the GCC for 13 years. “The Middle East is a key area of growth for the business and in order to achieve our ambitions, it is vital that we have the right team in place.
“Coutts expansion in the Middle East will see the business leveraging its ongoing strategy to provide clients with an exceptional wealth management solution that draws on the technical insight and substantial global resources of Coutts Investment Services team.”
