The first weeks of the year are a time to recuperate from the excess of the holiday season and perhaps break a few new year’s resolutions.
Finance professionals may suffer from these common maladies, but for them the start of a new year is also a time to assess performance and start allocating funds according to new strategies.
Emirates Business spoke to two major players in the region to find out where can investors obtain the best returns for their savings.
Firas Mallah, Head of Dexia Asset Management in the Middle East
Mallah said that the smart plays for this year are surely in Australia and in high-yield bonds [commonly known as junk bonds].
In Australia, Mallah is evaluating a diverse range of stocks in services, the financial sector, manufacturing, tourism and commodities. “When there is still growth in Asia, especially China and India, and as Australia is a very large trading partner to those countries, it is easy to deduce that there is still some gold left Down Under,” Mallah said.
He said a recession in the United States would not hamper Australia’s growth. He also noted Australia enjoys an “extremely solid regulatory environment” and is able to absorb a lot of capital that alleviates the “concerns that you have on a typical emerging market”.
Dexia, which has $165 billion (Dh605.5bn) of assets under management, invests its clients’ funds in a diversified portfolio that includes equities, fixed income and other vehicles.
Mallah is taking some time before making any big moves, especially as the residual impact of sub-prime is still uncertain. But he does see one almost sure bet.
“People who have the opportunity to get into high- yield fixed income today are probably making a very smart choice.”
He said the overreaction during the credit crunch penalised some good securities, as the risk premium embedded in these bonds is inflated out of a mass market movement and a sudden aversion to risk. “We think there will be some growth and upside,” Mallah said.
Mohamed Abdel-Halim, Vice-President EFG-Hermes Asset Management
Abdel-Halim is pleased with GCC stocks, and his firm’s performance in 2007, both in terms of inflows and returns. He noted there are still some good buys in the region.
At the beginning of the year, EFG started with $350 million in assets under management in the GCC, and has grown to $2.5bn. If the Egypt component is added, EFG controls $6.5bn. “Our funds have beaten the benchmark on the higher end by 10 to 15 per cent and on the lower end by five per cent.” EFG’s offshore Meda fund closed the year up 50 per cent and its Egypt fund posted returns of 62 per cent.
The majority of new inflows into the funds have come from foreign investors, said Abdel-Halim. The main reasons being improved transparency and corporate governance, and more importantly, cheap valuations.
“Last year the valuations were very cheap in the region, everything was trading at a discount compared to other emerging markets, but the general macro outlook here remained robust.”
It is becoming increasingly difficult to spot the opportunities in the region, especially as valuations are converging with other emerging markets. Abdel-Halim said it might be best for investors to leave decisions up to the asset managers this year.
“The markets here are inefficient and being able to exploit these opportunities is what will determine who can extract alpha from these markets and who can’t.”
Yet EFG predicts another good year for both the UAE and GCC markets. “Valuations are still attractive, earnings are growing at a very high rate, and return on equity is the highest in emerging markets. This could be conducive to a good year for region’s stock markets,” said Abdel-Halim.
With most major investment banks predicting a US recession and an overall slowdown in the global economy this year, investors will need to be creative [and less risk averse]. The asset managers from Dexia and EFG are calling on investors to shift money from the slowing developed economies to the Middle East and Australia, a strategy that could be the wisest play during the looming downturn.
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