Sound Financial Principles

In the midst of the maelstrom that has overtaken global financial markets, Amer Khansaheb believes sound principles of financial analysis are vital to mitigate the worst effects of stock market volatility.

The CFA Society Emirates (CFA stands for chartered financial analyst), of which he has been president since 2013, exists to encourage and cultivate international standards of analysis by financial professionals in the UAE.
With 633 members in the country, the society works with market regulators and other authorities to raise standards and set professional and ethical principles among portfolio managers, investment advisers and other financial experts. It has members in some of the biggest corporations in the country.
Mr Khansaheb is also the managing director of Khansaheb Investments, one of the biggest family-owned conglomerates in the UAE, with interests in real estate, construction and finance. His work for the family business encouraged him to seek ways to improve and modernise financial analysis methods.
He answered questions from The National in an email exchange this week, and had some interesting things to say about the need to increase transparency and trust.
In a nutshell, why is good financial analysis so important?
Financial analysis makes the difference between a good investment and a bad investment. The purpose of any investment is to grow capital, and that is not an easy thing to do. Understanding where the money will be spent, understanding the expertise and capabilities of those managing the money, and the industry is key.
Yes, markets are getting more correlated, and stocks tend to move together up or down, but in an up move there are those who increase the most and those who increase slightly, and the same in a downturn. Good financial analysis can help you beat the market on an uptrend by achieving higher return, and beat the market in a downturn by achieving lower losses.
How does the CFA try to improve financial analysis?
In CFA, we believe in continuous education. Accounting standards and the investment industry in general evolve all the time, and it is our responsibility as professionals to stay up to date with new developments. At the local society level we run numerous events throughout the year to create opportunities for our members and the general public, to stay up to date with what is happening in the industry.
But that is only one part of our mission, which is to improve the industry as a whole. In the region, I believe a key aspect we are missing are integrity and trust. There is a trust issue between investors and financial services providers, and there is no authority that is actively intervening. The Dubai International Financial Centre, as one of the first free zones in the region, has set a good example in tackling this issue. More effort is required by central banks around the region to regulate financial services professionals and guide them towards putting investors’ interest first.
In your view, what are the challenges facing analysts globally?
I think the biggest challenge is globalisation. Economies and markets have become so intertwined that an incident anywhere in the world can have implications beyond its borders. This brings in additional challenges, and analysts will need to understand the big economies’ internal politics to understand how governments will react economically. An example of that is the devaluation of the yuan, and the selling wave in public-listed equities that it caused across the globe.
What particular challenges are there in the Middle East?
With all the international conflict, there are of course some challenges. However, I believe the first challenge that needs to be tackled is timely, accurate economic data. We really need to understand how the economy is performing on a current basis. For example, in Dubai, real estate is the driving industry of the economy, yet the information provided on the industry is hardly relevant. To be able to analyse the industry, an analyst needs to know how many jobs are being created, how many house permits have been issued, how many houses have been completed, how many houses are sold, how many of those sold are sold to first-time buyers, how many of those sold are mortgaged, and who is buying, is it residents or non-residents? Analysts also need to know quarterly GDP figures on a timely manner and not nine months late.
How could financial analysis of UAE companies be improved, especially with regard to the all important government-related entity (GRE) sector?
They can be improved through better transparency on the authorities’ side and by the companies. We need to move from a speculative publicity-driven economy to a knowledge-based economy, in which investment decisions are based on facts and analysis.
What is more important: good governance or transparency?
Both. You cannot have transparency without good governance. The latter brings confidence to the management to be able to share important information without fear.
What are the medium and long-term key performance indicators of the CFA? How do you know you are successfully achieving your aims?
As a local society, we gain confidence from membership renewals and numbers. Over the past few years we have seen our membership base grow, and our retention rate increase.