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Currencies, bonds, gold, and emerging assets

To not get fooled

by Thomas Schellen

The mundane reality of human wealth advisories is keeping investors in the purgatories of risk. Thus, it seems proper for the investor to track the evolutions of asset classes in a world where comprehensive wealth narratives begin with traditional asset classes—gold, bonds, and cash—and also venture into non-traditional stories of investing in infrastructure, entrepreneurship, and environmental, social, and governance (ESG) assets.  

Gold, bonds, and currencies are classics in representing the asset classes of commodities, fixed income, and cash. They differ widely in their characteristics, and being cogent of them is good for anyone interested in wealth management.

Whereas the asset classes of equities and real estate can be reasoned to have significant local provinces for retail investors with interests in Lebanon, global trends determine investment strategies for commodities, fixed-income, and cash asset classes to such a degree that local wealth holders need to stay 100 percent observant of developments in the respective international markets.


For gold bugs, but also for international commodities consultants, the outlook for gold prices has strong upsides that, as of the middle of 2019, are expected to be realized earlier than previously thought—in tandem with economists’ recent expectations (see the National Association for Business Economics [NABE] survey coverage) that a global recession could be impending in 2020 or 2021. In a recent newsletter by German precious-metals firm Degussa, its head economist Thorsten Polleit says an increasing number of factors suggests that globally “the upward trend in prices of gold and silver” will continue, and he advises investors with long-term orientations to expand their positions. Lebanese wealth management professionals concur. “We believe in gold, and we think the upward trend of gold has started and is far from ended,” Jean Riachi, the chairman and general director of FFA Private Bank, tells Executive.

“Many analysts believe today that gold will rise, and it does not have to be a doomsday scenario to believe so. Gold trend is up because of geopolitical risks and the issue of trade war,” says Fadi Osseiran, the general manager of Blominvest. He notes that a fund product designed by Blominvest’s asset manager a while ago with 30 percent bonds, 50 percent equities, and 20 percent allocation to gold has been outperforming because of gold.

Youssef Dib, general manager for private and investment banking at Saradar Bank, explains that three of the most highly used portfolio strategies in the bank’s offerings today include relatively strong proportional allocations to gold at 5 percent. 


When it comes to cash, often-cited data points to a near-term disappearance of physical banknotes and supports the interests of financial services corporations facilitating electronic transfers and other stakeholders that stand to benefit from physical money’s decreased use. While expectations for the great cashless global society tend to ignore or downplay countertrends, the businesses of trading and speculating in currencies are not predicted to experience death until the world’s end.

It is logically no shock that Lebanese wealth managers see strong prospects of currencies as an asset class for local investors. “In terms of currencies, I would again stress diversification,” Dib says.  “We are in a dollar-based country in Lebanon and also in a dollar-based [region] area of the world. But as one sees volatility in the dollar, one can [observe] that safe-haven currencies and [precious] metals are going up, and [diversify one’s portfolio into] Swiss Franc, Japanese Yen, and gold.”

Raja Abdallah, the investment adviser of Beirut-based currency trading specialist Royal Financials, says that currency trading offers sufficient sophistication and choices so that investors see currencies as an asset class in itself. “[As a banker working in Switzerland], I had clients who played nothing but currencies for managing their wealth, either in the form of speculation or hedging,” he explains, adding that Royal Financials is in the process of launching a capital-protected structured product linked to foreign exchange. “We have a track record at our trading desk that has outperformed many indices for a long while; as this is our forte, [Royal decided] to offer a yield-enhanced structured product that can potentially beat the bank yield of deposits in Lebanon, and do so with capital protection,” he tells Executive. 


The expectations for international bond markets appear to shift in ways not yet seen in this century. “On bonds, I think we are reaching the end of the long bull market that started in the early 1980s under [then Federal Reserve Chairman] Paul Volcker when he increased rates dramatically to tame inflation,” Saradar’s Dib says. “What followed was a cycle of almost 40 years during which the interest rates were coming down, a period of deflation trends, [to the point that] now there are $14 trillion [worldwide] of negative-yielding bonds. I would be careful with bonds now, especially given that liquidity [in bond markets] today is less than in 2007 and 2008.” 

For Charles Salem, assistant general manager and global director of private banking at Banque Libano-Française, there are pro-bond arguments due to their reputation as safe-haven assets despite their yields at historical lows across the board. In his view, investors could nonetheless leave this market for greener return pastures if turnarounds in the global Purchasing Managers’ Index (PMI) and other signals point to improving growth. “With a continued slowdown in global growth on the horizon, the bond market is hovering around current levels,” he says. “In the case of a reversal in the current downward trend of global PMIs and renewed confidence and growth occur, we would expect a shift from bonds to higher yielding equity markets.” 

Royal Financials’ Abdallah sees the first and central question on bond markets in investors’ need to gauge the state of mind at America’s Federal Reserve. He argues this is because interest rates determined at the Fed influence bond pricing in many parts of the world, before he alludes to underdeveloped bond innovation potential among emerging markets issuers. “I would like to see emerging markets become more creative rather than offer [bonds] that are either very speculative or very boring,” he says.

The significant others

Some asset classes other than the big ones mentioned above could suddenly rise to local prominence and help produce social benefits and good returns for investors in Lebanon. One that would require national reform before entering into the market is private investing in infrastructure projects.

Internationally, infrastructure investment is an asset class that has captured the imagination of investors in positive correlation with the tendencies of governments around the world to open infrastructure developments to private participation mainly through public-private partnerships (PPPs) but also via partnerships with multilateral development banks (MDBs). As a 2017 World Bank blog notes, the potential of unblocking private capital for infrastructure investments in emerging economies is great and, in the context of the UN’s 2030 sustainable development goals agenda “an asset class approach could open a door to massively employing the financial markets to promote sustainable development, especially in rapidly-growing urban centers in emerging markets.” 

With hoped-for PPP schemes for infrastructure investment projects in Lebanon, the future thus might see local and expatriate investors presented with infrastructure investment opportunities via financial markets and also see Lebanese investment bankers and wealth professionals rise to important facilitators in realization of the envisioned infrastructure assets in a country that sorely needs them.

The first two investment ideas to be assessed in the realm of private sector entrepreneurship are investments into the private equity/venture capital sphere and direct investments in knowledge economy enterprises and startups. A main consideration before investing is the riskiness of the activity. “Tech startups carry a high amount of risk, as fast burgeoning ideas do not always make it to operating profit and market expansion,” explains Toufic Aouad, the general manager of Audi Private Bank, noting a preference for diversified funds over direct investments due to the difficulty of determining success in the early stages of a startup. “The BDL Circular 331 initiative has encouraged the setup of new funds and has fueled job creation, with the objective of supporting private sector initiatives, especially tech startups,” he says. “We have been exposed to such managers who have managed to attract suitable clients able and willing to bear the risk, liquidity, and time horizon constraints of such investments.”

For Riachi at FFA, the path of investments in the tech ecosystem is not only less-trodden but should remain so. Lamenting the track record of tech investment, he notes: “Most companies in the ecosystem did not make it, and some [became] big messes. Investing in startups is not for everybody, and we do not recommend our clients invest in startups. We do not even recommend investing in venture capital funds as we do not think this investment is suitable for most people. Yes, if you are a huge family office with 100s of millions of dollars, you can allocate part of this to the area of venture capital and investing in startups. But otherwise, I do not think it is a good idea.”

Private equity and startup investing takes a nuanced approach for Blominvest head Osseiran. According to him, the bank generally sees the best way for such entrepreneurship investments for a rich person in Lebanon is in taking the route of specialized funds rather than placing direct investments, but there are some investors in Lebanon where an approach for direct investments is right. “We are not advising clients to invest directly in startups, but we are helping some startups in raising money,” Osseiran says. “As private banker I do not advise my clients to invest in startups directly, but as an investment banker, I go and look for investors. However, I only [seek out] very sophisticated ones who are more educated than private banking clients need to be.” He adds that such potential investors could be a family office with its own due diligence procedures to assess such an investment opportunity. “I can do that, but this is not an advice to a private [banking] client. For me, VC [investing] and startup equity has potential as an asset class in Lebanon, but this is still early,” he says.

Attracting potential

Fawzi Rahal is a stakeholder in the entrepreneurship ecosystem as managing director of Flat6Labs in Beirut, a startup program and seed fund of $20 million. In his experience, the idea of attracting investors to the funds in the ecosystem—prudent as the financing modalities created under the system of Circular 331 need increasing supplementation and replacement in the coming years—has so far seen first positive impulses of funding inflows through negotiations with MDBs. “To attract investor money into the Lebanese ecosystem would not be a proposition of an economic benefit for the investor, due to our situation in Lebanon, as much as a proposition for a business benefit because of the value that Lebanese startups are capable of creating,” Rahal says. He adds that it was feasible, in his experience, to channel what were small commitments for tech funds abroad into startup tech companies in Lebanon or organize contributions from international institutional investors into a fund like Flat6Labs’ Lebanon Seed Fund, but that some foreign investors encountered technical barriers and regulation-related difficulties when trying to deposit funds into an account of a startup in Lebanon.

As Rahal explains it, diaspora investors and expatriate high-net-worth-individuals are not currently showing a lot of desire to invest in the Lebanon Seed Fund, but potential for attracting such investments could be developed further. Possibilities include initiatives such as a diaspora network of business angels, and credible, attractive return propositions. Presenting Lebanese entrepreneurship as an asset class could be worthwhile as the ecosystem is slowly maturing and would benefit from positive exit stories, such as a very recent one that was realized by Flat6Labs in Egypt, Rahal says. “We are giving commitment to our [limited partners] that we will give them anywhere from 20 to 25 percent [internal rate of return], and the way we do it is through the tried and tested model that we apply, which entails seed [funding of startups] and then follow up [funding],” he explains. “To use the example of the [mid-August] Harmonica exit: Harmonica is a matchmaking startup from Cairo and its acquisition by [US-based site] Match allowed Flat6 to get 16x returns—600 percent IRR.”   

Cryptic on cryptocurrencies

Most wealth management experts who Executive spoke with said that they are not touching cryptocurrencies for the time being. FFA’s Riachi shared his skepticism by explaining that to him, the top entry in the crypto industry, Bitcoin, and similar concepts are not really currencies, and that the proposed cryptocurrency, Facebook-led Libra, is a payment system where it has to be seen what happens with it. “Why do you want to buy cryptocurrency? Go buy gold; it is the same thing. If you think that commodities will go up, then buy the commodity that exists since 3,000 years and that everybody knows, and where everything is clear about the way you transact and the way you safeguard [your investment],” he says.

Currency exchanges all over the world are facing new risks. (Picture: Shanghai)

“As for cryptocurrencies, we believe they are still at early stages. This nascent asset class should, however, become part of asset allocation in the next years,” says Audi’s Aouad. “So far, their complex nature coupled with regulatory authorities’ rejection do not help wider adoption by the general public. Also, widely known companies such as Facebook are looking to enter the space (despite initial negative reactions by governments and officials), which is growing awareness about cryptos. It is though too early to have a proper basis for analysis, predictions, and recommendations at this stage.” 

The impact buds

A final realm that seems historically and presently underrepresented in the portfolio strategies of local wealth managers is impact investing, which can take several directions. According to a brief description by the International Finance Corporation, this activity is described as investing “with the intent to contribute to measurable positive social, economic, and environmental impact alongside financial returns.” In the perspective of Saradar Bank’s Dib, microfinance in Lebanon can be regarded as an asset class in this very context of ESG commitments and their growing global appreciation. “We have a growing sensitivity to impact investing among the younger generation, and there is hope in microfinance. There is a need for microfinance that banks do not address. We have good experience in the area, and there is real added value and also strong impact on advancing women in the workforce,” Dib adds, referring to microfinance activities that are supported under the umbrella of Saradar Group on whose website it is classified as a sister company to Saradar Family Office.

The BLOM Bank group is experimenting with impact investing through a startup entrepreneurship initiative and competition, the Hult Prize. According to Osseiran, the prize has two ESG dimensions by its being directed at university students and by its coordinated theme that is the same all over the world. “When one watches impact investing, it is important and growing all over the world, [including] Lebanon, but the field is also still early here,” he says. “If VC investing in Lebanon is still small and early, I would say that impact investing is the same, and even more so. Impact investing might gain track in Lebanon because so many things are socially needed, and in this sense impact investing is not far from mainstream thinking, but the entire VC investing realm is still distant from Lebanon investment perspectives.”

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Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years. Send mail

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