After a turbulent 2011, investors hoping for relief in 2012 are likely to be disappointed, with little prospect of a solution in Europe, an election year in the United States and a prolonged lack of stability in the Arab world. This month Executive asks Najib Semaan, assistant general manager and head of global markets at Bank of Beirut (BOB), and Yves Rahme, head of equities unit at Byblos Bank, for insights on where to invest in these challenging times.
Najib Semaan
Bullish or bearish? Semaan is cautious on prospects for global markets due mainly to the European sovereign debt crisis, but he does believe that “the end of the tunnel is near”. He expects the markets to reach their bottom toward the end of the first or second quarter of 2012.
Will politics drive the markets in 2012? The Middle East and North Africa region will be affected by the political situation. In Europe, as there are several decision makers wanting to influence the final decision to their own personal interest, politics will be a driver of the markets as well. In the United States, 2012 will be about growth, which will be better than 2011, while equities will also be in better shape. Semaan very shortly expects to see a bottom in US equities.
Favorite assets? Semaan will buy large cap equities and avoid small caps, as BOB cannot afford further pressure on their balance sheets. Large caps, on the other hand, might see lower volumes but they can afford another bad year. He also likes German government bonds and those of large European corporations.
Thoughts on the MENA region? Semaan expects the unrest in the region to remain for another two to three years. Within the MENA region, he has a preference for Qatar and Saudi Arabia and has enormous confidence in Lebanon. He believes that the Lebanese central bank’s monetary policy has created confidence in the economy but he stresses that it is critical that the government steps in to “restructure the debt and put in place a plan for growth”.
Thoughts on Lebanese securities? “Interest rates on Lebanese bonds are now close to their bottom and we can’t afford lower interest rates, as they are no longer justified relative to our fundamentals,” he says. He expects Lebanon to afford another one to two years of interest rates at these levels but in the long run, without restructuring, he expects rates to go up. As for the Beirut Stock Exchange, he doesn’t expect much as “Lebanese investors are short-term oriented” and since many Arab investors lost substantial funds during the revolutions, they are not taking new positions.
Top picks globally? Semaan would buy US large-cap stocks such as General Electric and well-capitalized US banks and oil companies globally. He would also buy German government bonds and bonds from large European corporations, such as Électricité de France.
Yves Rahme
Bullish or bearish? Rahme would prefer to wait for dips before buying into the markets. He highlights that the real losses in the markets are in Europe and the MENA region, as the US markets recovered their losses in 2011. The problems in Europe have not been resolved yet and although European policymakers “have helped Greece, it’s just like putting on a band-aid, they didn’t dig deeper”.
Will politics drive the markets in 2012? In the MENA region, “it will take a year or maybe more to put in place real governments after 40 years of dictatorship”, so politics will still drive the markets, according to Rahme. He fears that in Europe the main issue has not been resolved yet. Rahme believes that each European country should try to resolve its own deficit. He is concerned by the lack of coordinated action from Eurozone policymakers in taking “a bold step to show all the markets and investors that they will do whatever it takes to save the euro”. As for the US, Rahme believes the markets will be driven by politics, as 2012 is an election year.
Your favorite asset classes? Rahme would buy stocks in defensive sectors such as telecommunications, consumer retail and healthcare, or companies such as Visa and American Express, and would also recommend companies exposed to emerging markets. Rahme also likes companies such as McDonalds, which are not much affected by the net worth of people.
Thoughts on the MENA region? Rahme likes Saudi Arabia and Qatar. He would invest in Saudi Arabia as it is an oil-rich economy with a large current account surplus and enjoys a growing GDP. As for Qatar, he would be investing there due to upcoming infrastructure investments driven by the World Cup in 2022 and Qatar Vision 2030, the country’s long-term strategy for economic growth.
Investment picks in MENA region? Rahme would invest in a Qatari bank as the developers of the large infrastructure projects need liquidity. His top pick in Qatar would be Qatar National Bank. In Saudi Arabia, he would buy National Industrialization Company, also known as Tasnee.
Your thoughts on Lebanese stocks? The issues with Lebanese equities at the moment are mainly political, according to Rahme. For Solidere, its depressed value is mainly due to local politics. For the banks, it is due to both local and regional politics, as the most traded banks have branches in Syria and Egypt. Rahme also highlights that Arab investors are selling their stocks everywhere, which is not helping Lebanese equities. For a long-term investor willing to wait two to three years for a return on his money, Rahme would buy Solidere. He would also look at Lebanese banks as they are conservative, they are doing well and they offer attractive dividends.
“It will take a year or maybe more to put in place real governments after 40 years of dictatorship”
Recommended stocks
Qatar National Bank, the country’s first Qatari-owned commercial bank, has 40 percent of the
market share in Qatar and is one of the largest financial institutions in the MENA region. It is up 13 percent year to date and has a $26 billion market capitalization. Qatar Investment Authority owns 50 percent and the remaining shares are listed on the stock exchange. Its regional presence has grown through stakes in several banks in the MENA region: 35 percent in Jordan-based Housing Bank for Trade and Finance, 24 percent in UAE based Commercial Bank International, 50 percent in Tunisian-Qatari bank, 23 percent in Iraqi-based Mansour Bank and 51 percent in QNB-Syria, a private stock company.
National Industrialization Company, also known as Tasnee, is a Saudi-based holding with worldwide industrial projects. It operates in five sectors: petrochemicals, chemicals, metals, diversified (includes plastic and batteries) and it also provides industrial services. It is the first Saudi joint stock company fully owned by the private sector. It has a market capitalization of $6 billion and is up 36 percent year to date.
