JP Morgan: An Investment Of The Ages

Looking back at the last 18 months, how has your sentiment for the region changed?

If anything, while growth has been somewhat tepid, our long-term outlook has improved. The reduction in oil prices since late 2014 and a change in leadership in various countries has started an economic and social reform plan in the region that will be very important for the long-term prospects of this region.

We are excited about that and think as a bank, we can be very helpful in that transformation process, whether it is by providing advice, facilitate access to the debt and equity markets or help companies and countries optimise their asset and liability profiles.

 What are your main concerns this year?

They are largely geopolitical. The world is not as coordinated as it was before on very important subjects such as global trade or regional conflicts. Time will have to show whether the ‘global community’ is set up to deal effectively with difficult economic or political situations we may encounter going forward.

How would you describe the global appetite for GCC and wider Middle East investments?

A material portion of the high-grade bond market is trading at negative yields. The GCC region offers high quality credits at attractive rates which should support the growth of the capital pools earmarked for the region. We are also working with our clients on expanding their reach by connecting with investors across the globe to further grow and diversify the investor base.

With respect to FDI, we see upside, admittedly from a relatively low base, in places like Saudi Arabia, UAE and Egypt, as valuations are relatively attractive and economic reforms start to have an impact on the overall business climate and the ease of doing business.

What are your projections on the bond market in this region for the next 12 months?

So far this year, market conditions have been very favourable for high grade and emerging market issuers. In the Middle East, we have seen $68 billion of supply this year across all sectors, with sovereigns claiming a 50 per cent market share, and we would not be surprised if 2019 ends up being a record year in terms of volumes. Our near-term view is that current market conditions will persist with low interest rates encouraging clients to refinance and optimise their capital structure.

What are your views on liquidity in the Middle East’s banking sector? How do you see this changing?

Amongst the oil exporters, liquidity has definitely been impacted negatively by the drop-in oil prices after 2014. While we have witnessed some modest improvement since 2018, most countries continue to grapple with weak growth amidst regional conflict, which in turn has impacted trade, travel, and investment activity, and thus growth and liquidity conditions remain sub-optimal.

We do not expect a significant change either way. While the reversal of monetary headwinds will provide some impetus to liquidity growth this year, this will be tempered by the downward pressures on commodity prices due to the weaker global growth outlook and surging US supplies.

The Middle East has a strong, profitable banking sector. The impediment to more growth is not the supply side of bank lending, but rather the lack of investments and associated need for borrowing.

Having a broader view of things, how do you see the GCC/Middle East fare amongst its emerging market peers?

It’s hard to generalise as each country has its own dynamics. The Middle East has a number of very appealing stories, for example the reforms and MSCI inclusion in Saudi Arabia or the improved economic picture in Egypt. For the broader region, low oil prices, geopolitical complications and an overall slowdown in global growth are worries for investors. On the positive side, the widely anticipated decline in US rates will have a similar impact on rates in the GCC and is likely to lend support to economic activity.

What is J.P. Morgan’s current position in this market? And what are your plans for your operations in this region?

Whether it is governments, corporates or financial institutions, clients seem to very much value our commitment to the region and the quality of our people and services. As a result, our top line has grown 25 per cent over the last four years, we have a 13 per cent market share in investment banking, almost four per cent ahead of the number two, are equally dominant in the markets business, and have leading positions in other businesses such as corporate banking, global and local custody as well as asset and wealth management.

Our plans involve no radical changes, but rather, to stay the course and keep investing in people and capabilities, particularly in Saudi Arabia. For example, over the last few years, we built a Saudi equity brokerage platform that ranked number two in volumes last month and we have also built a local Saudi custody platform for debt and equity, which has seen tremendous inflows. In the UAE, we also intend to keep investing in local capabilities as we expect it to continue to be a key regional hub for our global clients.

Sjoerd Leenart is the Global Head of Corporate Banking, responsible for Corporate and Financial Institution clients across North America, Latin America, Asia-Pacific, Europe, the Middle East and Africa. He is also the Regional Head for Central & Eastern Europe, Middle East and Africa (CEEMEA). In this capacity, he represents JPMorgan’s global platform across all business lines and works with coverage teams and clients across the corporate and investment bank and asset management. He is also responsible for the firm’s governance and the relationships with local regulators in these markets.

Leenart has been at J.P. Morgan for over two decades and gained experience in a variety of roles across the firm. He led the European high-grade bond syndicate desk until 2002 and then became co-head of western European debt capital markets.

In 2006 he was named co-head of CEEMEA Debt Capital Markets, Sales and Derivatives Marketing and added Latin America to his responsibilities in 2009. He was appointed Senior Country Officer for the Middle East and North Africa region in 2011 and expanded his responsibilities to Turkey and Africa in early 2014. He was named Regional Head for CEEMEA in 2017. Leenart holds a doctorate degree in Economics from Erasmus University of Rotterdam.