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Emerging market equities best bet

As individual investors try to get a general sense of direction on which way the economy is headed in 2010. (EB FILE)

By Shuchita Kapur

As far as commodities are concerned, we are positive on oil and the broader energy space Gary Dugan, Emirates NBD

Gary Dugan, Chief Investment Officer, Private Banking, Emirates NBD, has marked out selective areas for investment.

"We are positive on equities and we prefer emerging market equities as compared to equities in the developed world. We believe the issues around China are exaggerated and that upgrades to profit forecasts will drive further good absolute gains in the markets.

"We are neutral on real estate. Some markets in Europe have recovered fast. For example, the recovery in the UK's real estate market has been quick. We believe that the UK economy is not going to grow that much and there is enormous amount of debt. However, London will continue to be a special case and there is huge interest in residential property. We think real estate in the US and emerging markets seem a better bet than Europe.

"As far as commodities are concerned, we are positive on oil and the broader energy space. We expect the spot oil price to potentially hit $90 per barrel this year and higher again in 2011. We believe continuing problems with supply will meet strong demand from the emerging world.

"In the fixed income assets category, we are more positive on emerging market bonds, especially Mena bonds as credit problems get solved.

"On alternative assets, we are positive on gold. It helps in diversification. We do not consider hedge funds under this category."

Emerging market equities are more favoured than developed market equities M R Raghu, Senior Vice-President-Research at Kuwait Financial Centre

The general expectation is that economic recovery will be subpar accompanied by deleveraging. Within this context, I propose a balanced exposure to equities and bonds with some amount of commodities, said M R Raghu, Senior Vice-President-Research at Kuwait Financial Centre (Markaz).

Within equities, emerging market equities are more favoured than developed market equities, as signs of economic recovery are still fragile in developed markets, especially in Europe.

After a great run in 2009, emerging market equities may come under some strain initially, especially due to spiking inflation in some countries.

However, there is still a lot of earnings catch up that one can expect and hence it may be prudent to have the exposure.

Within emerging markets, the GCC looks attractive (especially Saudi Arabia and Qatar) as they have severely under-performed emerging markets during 2009. The macro story continues to be good (strong GDP growth, strong oil price, fiscal surplus, current account surplus and government investment in infrastructure).

However, banks and real estate companies are best avoided. Bonds are at best defensive play given their low yields.

It would be wise to have more of emerging market bonds (local currency) since returns to the broad investment-grade bond will be subpar over the next few years relative to historical bond returns.

Given the high exposure of fixed income, one may well be advised to look for funds with absolute return focus as these funds manage to return positive even in a period of increasing interest rates.

I would tend to avoid real estate at least for 2010 given the fragile state of the industry and funding difficulties.

Commodities look good given the strong oil price and strong outlook for gold.

I will not suggest going for real estate this year because the problems are still not over Kamal Fayad, Independent consultant

I suggest allocating a larger portion to emerging market equities where there are better growth prospects. In equities, I will go for consumer, certain financials and commodity related sectors, said Kamal Fayad, Independent consultant.

I will not suggest going for real estate this year because the problems are still not over and we have to see an improvement in the credit situation.

The commodity cycle still has not finished and this asset class still has a role to play, especially for global hedging.

Growth in global economy will also push up the prices of commodities, so I would suggest investing in them. I am bullish on oil and hold a sort of stable status on gold. I also expect to see growth in agricultural commodities.

For alternative assets, I do believe that fund of funds will make a comeback. I am also bullish on green energy and alternative energy. It is advisable to look more carefully at companies, which are considered to be part of the next generation.

In the fixed income assets category, I am bullish on corporate bonds and convertibles.

In a nutshell, I believe that for 2010, an individual should maintain a dynamic portfolio. There is no perfect allocation and the portfolio should be constantly monitored.

There are many big events happening this year and the global recovery will be rather slow. Even in emerging markets, the recovery is expected to be slow. Markets such as China and India are booming but the recovery in the Middle East and North Africa is lagging behind.

A good allocation can be achieved by selecting the right funds or fund of funds. Keep private equity and real estate on very low level of investment for obvious liquidity reasons.


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