Connect with us

Markets

Pandemic brings surge in business for Middle East’s fintechs

Published

on


Some of the world’s strictest lockdowns and restrictions were imposed across the Gulf states to combat coronavirus. They caused havoc across oil-reliant economies already hit by low crude prices.

But, as elsewhere around the world, the region’s emerging technology firms were big beneficiaries from a surge in ecommerce activity as customers sheltered at home.

The payment platforms behind the shift from bricks-and-mortar to digital commerce have dominated the region’s emerging fintech scene, some supported by larger telecoms companies. Early last year, e-payments surged in Saudi Arabia, the Gulf’s largest market, after customers were allowed to use debit cards — rather than less-common credit cards — for online transactions.

The burgeoning market has attracted overseas interest in the digital infrastructure underpinning financial technology. Western Union last month said it would invest up to $200m for a 15 per cent stake in STC Pay, the fast-growing payments arm of Saudi Telecom Company, the Riyadh-listed giant controlled by the kingdom’s sovereign wealth fund.

Regional payments are dominated by Payfort, a Dubai-based start-up sold to Amazon in 2017, the same year that the US company became the region’s dominant ecommerce player with the acquisition of local incumbent rival Souq.

Others are emerging as independent rivals to Amazon. Telr, a Dubai-based payment company, has quickly developed a product that allowed even the most modest neighbourhood grocery to operate through the pandemic. Merchants without a website could send payment links for customers wanting to avoid cash.

Hyperpay, a Saudi-based platform, increased revenues three times through the first three months of the pandemic as customers switched to online retail. The payment gateway, founded in 2014, launched a product to allow marketplace merchants to send fast, end-to-end payments via one platform to users — be they vendors, drivers, freelancers or service providers. The service allowed smaller merchants in the kingdom to compete with dominant international apps, as delivery-based services became vital in sustaining people through Covid restrictions.

“Hyperpay has been driven by these last-mile fulfilment services, and continues to fill in gaps in payment capabilities,” says Khaldoon Tabaza, founder of Jordan-based venture capitalist firm iMena, and an investor in Telr and Hyperpay.

The rapid adoption of online financial services through the pandemic has come from a low base — the Middle East still only represents 1 per cent of global fintech investment, according to a report on the sector by the Milken Institute.

But the sector is growing 30 per cent a year in a region where tech-savvy youth are quick to adopt new technologies. In 2017, 30 fintech companies raised $80m in venture capital funding; by 2022, that is expected to rise to more than $2bn from 465 companies, the report says, citing data from DIFC Fintech Hive and Accenture.

As well as powering ecommerce, fintech is bolstering financial inclusion as advances in technology enables services to reach millions of people overlooked by established banks and wealth managers.

Bringing basic financial services to 25m low-income workers in the Gulf states has been pioneered by start-ups including Now Money and Go Rise. Such fintech companies hope to get a cut of the massive $150bn a year remittances leaving the Gulf for homes in Asia and Africa, while “democratising” banking access for migrant labourers.

The Middle East’s middle classes are another opportunity. “Across Saudi Arabia and the UAE, middle classes want access to wealth management, but no one has been really catering to them. The wealthy always have solutions — but others now can be helped by robo-advisers,” said Rabih Khoury, chief exit officer at Middle East Venture Partners.

One of MEVP’s portfolio companies is Sarwa, the region’s first regulated automated investment platform. Such robo-advisers use algorithms to provide financial advice, access to products and help clients save by slashing fees and account minimums.”

Nurtured in the fintech accelerator of Dubai’s financial centre, Sarwa developed online know-your-customer protocols to ease account access in a region where clunky compliance procedures have acted as significant barrier for customers, especially the young.

Nadine Mezher

The pandemic highlighted the need for digital applications for clients, says Nadine Mezher, a Sarwa co-founder and its chief marketing officer.

The global market volatility that accompanied the pandemic posed a potential threat to robo-advisers, forcing Sarwa to talk to clients and push out content seeking to educate investors about the need to sustain savings plans through both good and bad times.

The education drive worked: during the first quarter, assets under management grew 100 per cent, with an 80 per cent rise in new account openings. In April, Sarwa attracted three times the assets of the previous year.

Sarwa, which has raised almost $10m over three rounds, closed its series-A round in January, providing a financial cushion to see the start-up through the crisis. “We now have strong backing from top regional and international investors,’ says Ms Mezher. “Sarwa is strengthening its position and working on further progressing with its expansion plan.” The Dubai-based firm, which is expanding operations into Saudi Arabia, is targeting between 10 and 20 per cent month-on-month growth.

Consultants say regulators are drawing up plans to open the entire retail banking segment to digital so-called challenger banks that have emerged elsewhere in the world. As established lenders face the challenge of fintech, legacy providers are increasingly facing the fact that co-operation with fintech start-ups will be vital to their long-term survival.

But many emerging fintech start-ups still complain about the barriers erected to stall development of the sector, especially among established companies nervous about upstart competitors.

Ms Mezher says regulators are increasingly open to change, but urges banks to collaborate more openly with fintech companies for the sector to flourish. “It may be a cliché that start-ups can manoeuvre easily, but banks have to go through bureaucratic hoops,” she says. “So while there is lots of interest to work with start-ups, it isn’t moving that fast.”

Mr Tabaza of iMena agrees that banks remain slow to adapt.

Even the nimblest fintech start-ups across all business models still need to work with established banking enterprises that can take weeks of onerous bureaucratic procedures to open accounts for merchants. “Adaptability and dynamism of legacy banking corporations is a big issue that faces the industry in the region,” he says.



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets

High-priced tech stocks sink further into bear market territory

Published

on

By


Some of the hottest technology stocks and funds of recent months have fallen into bear market territory and investors are betting on more turmoil to come, as rising bond yields undermine the case for holding high-priced shares.

A Friday afternoon stock market rally notably failed to include shares in Tesla and exchange traded funds run by Cathie Wood, the fund manager who has become one of the electric carmaker’s most vocal backers.

Shares in Tesla fell 3.6 per cent on Friday to close below $600 for the first time in more than three months, although it had been down as much as 13 per cent at one point. The stock is down 32 per cent from its January peak, erasing $263bn in market value.

Wood’s $21.5bn flagship Ark Innovation ETF — 10 per cent of which is invested in Tesla shares — also closed lower on Friday. It is now down 25 per cent and in a bear market, defined as a decline of more than one-fifth from peak.

Clean energy funds run by Invesco, which were last year’s best-performing funds, are also in bear market territory, along with some of the highest-flying stocks in the technology and biotech sectors.

“Bubble stocks and many aggressively priced US biotechnology stocks have been the hardest hit segments of the equity market,” said Peter Garnry, head of equity strategy at Saxo Bank.

The tech-heavy Nasdaq Composite index fell into correction territory — defined as a decline of more than 10 per cent from peak — earlier this week but rebounded 1.6 per cent on Friday as bond yields stabilised.

The yield on 10-year US Treasuries yield briefly rose above 1.6 per cent early in the day after a robust employment report for February buoyed confidence in a US economic recovery. Yields were less than 1 per cent at the start of the year.

Rising long-term bond yields reduce the relative value of companies’ future cash flows, hitting fast-growing companies particularly hard.

These type of companies figure prominently in thematic investing funds run by Wood at Ark Investments. The performance of Ark’s exchange traded funds has abruptly reversed after they recorded huge inflows and strong gains for much of the past 12 months.

“The speculative tech trade is in various stages of rolling over right now,” said Nicholas Colas, co-founder of DataTrek, a research group.

Bar chart of  showing Hot stocks and funds enter bear market territory

RBC derivatives strategist Amy Wu Silverman said investors were still putting on hedges in case of further declines in high-flying securities, including options that would pay off if Tesla and the Ark Innovation fund drop in value.

The number of put options on the Ark fund hit an all-time high on Thursday, according to Bloomberg data. By contrast, demand for put options on ETFs such as State Street’s SPDR S&P 500 fund — which reflects the broader stock market — have fallen as stocks have dropped.

Demand for options normally slides as a stock or ETF slumps in value, given there was “less to hedge, since you got your down move”, Silverman said. The elevated put option activity on speculative tech stocks and funds was “suggesting investors believe there is more to go”, she said.

Even after the declines, stocks in the Ark Innovation ETF remain highly valued, with a median price-to-sales ratio of 22 versus 2.5 for the broader stock market according to Morningstar, the data provider.

Two of the fund’s other big holdings, the streaming company Roku and the payments group Square, were also lower on Friday, extending recent declines.

Ark’s other leading ETFs have also retreated sharply as air has come out of Tesla and other hot stocks. Tesla is the largest holding in Ark’s $3.3bn Autonomous Tech and Robotics fund and its $7.2bn Next Generation Internet ETF.

Wood has also taken concentrated holdings in small, innovative companies. Ark holds stakes of more than 10 per cent in 26 small companies across its five actively managed ETFs, according to Morningstar.

“These large stakes raise concerns around capacity and liquidity management,” said Ben Johnson, director of passive funds research at Morningstar. “The more of a company the firm owns, the more difficult it will be to add to or reduce its position without pushing prices against fund shareholders.”

Ark did not respond to a request for comment. The Ark Innovation ETF is still sitting on a performance gain of 120 per cent for the past year. It bought more shares in Tesla when the carmaker’s shares began falling last month.



Source link

Continue Reading

Markets

Powell inflation remarks send Asian stocks lower

Published

on

By


Asian stocks were mostly lower after a rout in US Treasuries spread to the region after comments from Jay Powell that failed to stem inflation concerns in the US.

Hong Kong’s Hang Seng dropped 0.3 per cent following the remarks by the chairman of the US Federal Reserve while Japan’s Topix rose 0.1 per cent and the S&P/ASX 200 fell 0.8 per cent in Australia.

China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks dropped as much as 2 per cent before pulling back to be down 0.5 per cent by the end of the morning session, after Beijing set a target of “above 6 per cent” for economic growth in 2021.

Premier Li Keqiang hailed China’s recovery from an “extraordinary” year and said the government wanted to create at least 11m urban jobs at a meeting of the National People’s Congress, the annual meeting of the country’s rubber-stamp parliament.

“A target of over 6 per cent will enable all of us to devote full energy to promoting reform, innovation and high-quality development,” Li said, adding that Beijing would “sustain healthy economic growth” as it kicked off the new five-year plan.

Analysts were less sanguine on China’s economic outlook, however, pointing to the markedly lower growth target relative to recent years.

“There is, in fact, not much surprise from the government work report except for the super-low GDP target,” said Iris Pang, chief economist for Greater China at ING, who estimated growth would be 7 per cent this year. “This makes me feel uneasy as I don’t know what exactly the government wants to tell us about the recovery path it expects.”

The mixed performance from Asia-Pacific stocks came after Powell failed to alleviate fears that the US central bank was reacting too slowly to rising inflation expectations and longer-term Treasury yields, which rise as bond prices fall.

Powell on Thursday said he expected the Fed would be “patient” in withdrawing support for the US economic recovery as unemployment remained well above targeted levels. But he added that it would take greater disorder in markets and tighter financial conditions generally to prompt further intervention by the central bank.

“As it relates to the bond market, I’d be concerned by disorderly conditions in markets or by a persistent tightening in financial conditions broadly that threatens the achievement of our goals,” Powell said.

Yields on 10-year US Treasuries jumped 0.07 percentage points to 1.55 per cent following Powell’s remarks. In Asian trading on Friday, they climbed another 0.02 percentage points to 1.57 per cent. The yield on the 10-year Australian treasury rose 0.07 percentage points to 1.83 per cent

“Based on our growth forecast, longer-term rates will likely rise for the next few quarters — but more slowly,” said Eric Winograd, a senior economist at AllianceBernstein. “And we think the Fed is prepared to push in the other direction if rates rise too far, too fast.”

The S&P 500, which closed Thursday’s session down 1.3 per cent, was tipped by futures markets to fall another 0.1 per cent when trading begins on Wall Street. The FTSE 100 was set to fall 0.8 per cent.



Source link

Continue Reading

Markets

Financial bubbles also lead to golden ages of productive growth

Published

on

By


Sir Alastair Morton had a volcanic temper. I know this because a story I wrote in the early 1990s questioning whether Eurotunnel’s shares were worth anything triggered an eruption from the company’s then boss. Calls were made, voices raised, resignations demanded. 

Thankfully, I kept my job. Eurotunnel’s equity was also soon crushed under a mountain of debt. Nevertheless, the company was refinanced and the project completed. I raised a glass to Morton’s ferocious determination on a Eurostar train to Paris a decade later.

With hindsight, Eurotunnel was a classic example of a productive bubble in miniature. Amid great euphoria about the wonders of sub-Channel travel, capital was sucked into financing a great enterprise of unknown worth.

Sadly, Eurotunnel’s earliest backers were not among its financial beneficiaries. But the infrastructure was built and, pandemics aside, it provides a wonderful service and makes a return. It was a lesson on how markets habitually guess the right direction of travel, even if they misjudge the speed and scale of value creation.

That is worth thinking about as we worry whether our overinflated markets are about to burst. Will something productive emerge from this bubble? Or will it just be a question of apportioning losses? “All productive bubbles generate a lot of waste. The question is what they leave behind,” says Bill Janeway, the veteran investor.

Fuelled by cheap money and fevered imaginations, funds have been pouring into exotic investments typical of a late-stage bull market. Many commentators have drawn comparisons between the tech bubble of 2000 and the environmental, social and governance frenzy of today. Some $347bn flowed into ESG investment funds last year and a record $490bn of ESG bonds were issued. 

Last month, Nicolai Tangen, the head of Norway’s $1.3tn sovereign wealth fund, said that investors had been right to back tech companies in the late 1990s — even if valuations went too high — just as they were right to back ESG stocks today. “What is happening in the green shift is extremely important and real,” Tangen said. “But to what extent stock prices reflect it correctly is another question.”

If the past is any guide to the future, we can hope that this proves to be a productive bubble, whatever short-term financial carnage may ensue.

In her book Technological Revolutions and Financial Capital, the economist Carlota Perez argues that financial excesses and productivity explosions are “interrelated and interdependent”. In fact, past market bubbles were often the mechanisms by which unproven technologies were funded and diffused — even if “brilliant successes and innovations” shared the stage with “great manias and outrageous swindles”.

In Perez’s reckoning, this cycle has occurred five times in the past 250 years: during the Industrial Revolution beginning in the 1770s, the steam and railway revolution in the 1820s, the electricity revolution in the 1870s, the oil, car and mass production revolution in the 1900s and the information technology revolution in the 1970s. 

Each of these revolutions was accompanied by bursts of wild financial speculation and followed by a golden age of productivity increases: the Victorian boom in Britain, the Roaring Twenties in the US, les trente glorieuses in postwar France, for example.

When I spoke with Perez, she guessed we were about halfway through our latest technological revolution, moving from a phase of narrow installation of new technologies such as artificial intelligence, electric vehicles, 3D printing and vertical farms to one of mass deployment.

Whether we will subsequently enter a golden age of productivity, however, will depend on creating new institutions to manage this technological transformation and green transition, and pursuing the right economic policies.

To achieve “smart, green, fair and global” economic growth, Perez argues the top priority should be to transform our taxation system, cutting the burden on labour and long-term investment returns, and further shifting it on to materials, transport and dirty energy.

“We need economic growth but we need to change the nature of economic growth,” she says. “We have to radically change relative cost structures to make it more expensive to do the wrong thing and cheaper to do the right thing.”

Albeit with excessive enthusiasm, financial markets have bet on a greener future and begun funding the technologies needed to bring it to life. But, just as in previous technological revolutions, politicians must now play their part in shaping a productive result.

john.thornhill@ft.com



Source link

Continue Reading

Trending