Middle East bulges with cash, needs more scholars

By Daniel Bases

LONDON (Reuters) - Investment banks searching for ways to tap the deep pockets of cash, primarily from the Middle East, are increasingly looking to Islamic finance, says JP Morgan's head of debt and equity capital markets.

Investors in emerging markets are cash rich and hunting for high returns, while yield spreads on sovereign and corporate issues have been squeezed toward record tight levels and stock prices are on the rise as confidence in these economies grow.

"I think the strength in the Middle East lies in the liquidity they have more than any remarkable companies that can come to market," Viswas Raghavan told the Reuters Investment Banking Summit in London this week.

"I respect, or rather I am in awe of their ability to provide liquidity to the capital markets that is probably more stable, longer-term, less knee-jerk liquidity compared to some of the liquidity sources in Western Europe and the U.S.," he said.

Raghavan highlighted that by increasing the amount of bonds that are Sharia-compliant, there will be increasing amounts of Middle Eastern money buying international paper.

Devout Muslims who invest along Sharia guidelines will not purchase assets that pay interest or that derive profits from such things as alcohol, pork or gambling.

PROFIT-SHARING

The sector is fuelled in large part by the recycling of petro-dollars from the Gulf region, is believed to be anywhere from $200 billion to $400 billion in size globally and is built around the concept of profit-sharing rather than charging interest.  Continued...