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10 December 2023

Sufficient reserves help Gulf invest strategically

A whole new spectrum of M&A opportunities have arisen in the UAE. (SUPPLIED)

By Waheed Abbas

Despite the shrinking current account balances, the Gulf holds sufficient reserves that not only give it the necessary buffer against poor liquidity conditions elsewhere but also provide it with the necessary resources to secure strategic investments and holdings in international markets, said a senior banker.

Jakob Thomsen, Head of Dubai Office, Saxo Bank, said: "We remain deeply impressed by Dubai's entrepreneurial spirit and we trust that Dubai will use its will to succeed when it rethinks and redesigns its economy. Depending on market conditions, we intend to use our new office as the first step towards establishing similar presence in other GCC countries because we still think that this region will have an important role to play when the current financial crisis is over."

While many of the traditionally tax-friendly, banking nations such as the UK are coming under pressure from other industrialised nations, Dubai and the UAE stand to gain the wealth that now seeks new, tax friendly destinations, he said.

Dubai International Financial Centre is a prime example of this sort of an attractive framework with clear-cut taxation advantages and a highly advanced, regulatory foundation, he added.

Thomsen told Emirates Business that the markets overreacted to the Dubai World's request for a six-month moratorium on its debt, and ruled out a material impact on the markets this year.

He said: "A whole new spectrum of mergers and acquisitions (M&A) opportunities have arisen in the UAE. This not only creates a new economic activity but also provides the necessary condition for consolidation and a kind of a healing process of the finance sector."

On oil outlook, he said: "Saxo Bank has said for many years that the earth's oil endowment is limited and that peak oil may already be upon us within the next few years. However, the combination of stable to expanding supply in the short- to medium-term and the shock to consumption in the world's biggest oil consuming nations in recent years means that enough spare capacity is sloshing around in the world energy system to amply supply in the market at $70.

"As the year wears on, the market may realise it and oil could sell-off back toward $40 a barrel. Though that price is unsustainably low for the long term as it would cause widespread carnage on the voracious capital and investment needs oil fields require to keep humming."

He forecast decent earnings growth across all regions, especially in emerging markets next year.

About maximising profitability, he said major issue this year is to increase exposure towards cyclicals, especially energy sector in the first half of 2010 and then towards defensives in the second half of 2010. "We expect a potential increase in equity markets until mid-year and in past market rallies of this magnitude cyclicals have clearly over-performed.

"From mid-year until towards year-end, we expect risk-aversion to re-enter the market as it starts to adjust itself to an environment with higher interest rates, increased taxes, problems with commercial real estate, resets in Option-ARMs in the US housing market."

About equities, Saxo Bank said in a report that on regional level it prefers emerging markets. The bank stays neutral on the US and Europe and underweight on Japan.

"Our preference for emerging markets is primarily driven by the expected growth in GDP, which historically has been transformed into earnings growth. But the corporate sector in emerging markets also appears healthier than their developed counterparts. Higher profit margins, lower leverage and improving asset turnover all hint that emerging markets are a premium region [despite significant differences within this region]."


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