Brokerage Challenges…Regional Expertise

Sixth Annual Palestine Capital Markets Forum Palestine – December 11, 2012

Waleed Al-Nassan

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Setting The Stage2003 - 2007

Global

• The world is coming out of the tech bubble. • Strong global economic growth.• Strongly developing real estate finance sector / Investment Banking Boom.

Regional

• Continued strive for openness and deregulation.• Increased levels of FDI across all Arab countries. • American invasion of Iraq, (special impact on Levant region).• Increased commodity prices, (especially oil towards the end for the period).

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2007 - 2010

Global

• Beginnings of the meltdown of the US subprime mortgage market. • Unfolding of the global financial crisis. • Unprecedented declines in asset prices across all classes. • Compete freeze in the global financial system.

Regional

• Economies started to slow (especially non-hydrocarbon related ones).• Lower levels of FDI into the region. • Foreign portfolio investments pressured to leave the region. • Real estate investment across the region starts to decelerate. • Stock market valuations and volumes of trading reached very low levels.

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2010- 2012

• Global economies are trying to deal with the ramifications of the global financial crisis.

• The US has its unemployment and the fiscal cliff to worry about.

• In Europe stronger European economies are being dragged by the ailing peripheral economies (Greece, Portugal and Spain).

• The two fastest growing economies (India and China) are facing major challenges in keeping their economies growing at the time when their major clients economies are not.

• In the MENA region, the Arab Spring started and 2011 & 2012 have been amongst the most difficult years for the Arab capital markets. (Markets were affected in varying degrees)

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• Large scale withdrawal of investors (institutional and retail) from the markets.

• Trading volumes, valuations and number of transaction have been on the decline.

2010- 2012

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MENA Capital Markets Indicators

* 2012 number up to end of November** Source: Arab Monetary Fund Database

2008 2009 2010 2011 20120

200

400

600

800

1000

1200

Market CapitalizationValue Traded

USD

Bi

llion

s

1,200

1,000

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2008 2009 2010 2011 20120

5000000 10000000 15000000 20000000 25000000 30000000 35000000 40000000

Number of Transactions40353025201510

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MENA Capital Markets Indicators

* 2012 number up to end of November** Source: Arab Monetary Fund Database

USD

Mill

ions

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Brokerage Challenges

• Almost all brokerage companies within the region have suffered form the recent developments in the markets.

• All brokers witnessed marked declines to their volumes of trading, income, money under management and above all client confidence and trust.

• Though, some companies were affected more than others. Challenges could be grouped under the following headings:

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Brokerage Challenges• Low volumes of Trading

• Strong competition

• Pressure on fees• Potential for violating market rules by offering rebates

• Fragmentation of the market

• Too many players• Lack of incentives/willingness to consolidate

• Reasonably high infrastructure/ fixed cost

• Minim human resources• Minimum technology infrastructure

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Brokerage Challenges

• Increasing Regulatory Challenges

•Minimum capital requirements• New rules and requirements• Increased burden on surveillance and control • Tighter risk management rules

• Imperfect Market Structure

• High percentage of retail clients• Low level of participation of intuitional clients•Weak role of local investment funds industry • The virtually inexistence of long-term private saving and retirement

plans/funds

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The Way Forward

Given all the challenges said, Brokerage Companies have to decide on their course of action.

• It seems that brokerage companies have to choose one of two options:

stick to their business or leave

• They need to tackle a number of fundamental issues:

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The Way Forward

• Where is my customer base?

• Customer segmentation• Focus on core groups• Look for untapped segments

• Proper targeting and offer access to new investment opportunities

• Improving back office and trading platforms•Offer research or access to research • Adopt a proactive strategy •Make use of cross selling (in case of strategic partnerships)

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The Way Forward

• Regional and Global Exposure:

• Develop networking relationships and partnerships with regional and global brokers

• Offer professional market inelegance and market access

• Proper positioning of your capital market in the relevant segment (frontier markets)

• Continuous access to company managements within you market

• Continuous follow up and update for clients with local developments Source: Regional markets Challenges & Opportunities, Forum Finance, Bain & Company

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Should we be Optimistic?The answer is: yes

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Should we be Optimistic?The answer is: yes

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Should we be Optimistic?The answer is: yes

Source: KIPCO, company presentation.

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Thank You