Eurozone debt issues dominated market headlines yet again this month. The hefty 100 billion euro bailout of Spanish banks did not calm investor nerves, neither did the Greek elections which left the near-bankrupt country in the Eurozone for now. With credit rating agency Moody’s downgrading 15 global banks and financial institutions in June, the highly volatile and uncertain environment seem likely to grip the markets in the foreseeable future. For this month’s investment recommendations, Executive spoke to Henri Chaoul, chief executive officer of Master Capital Group and recently appointed chief investment strategist at Al Khabeer Capital, and Walid Abousleiman is the chief executive of Aksys Capital.
Henri Chaoul
Top recommendations: short the Euro and invest in private equity
More pain to come in Europe?
“There has been some binge drinking, and you can not keep on drinking and assume the hangover will go away. You will need to stop, and digest it and it will have to be painful,” says Chaoul when asked about the European sovereign debt crisis. He believes that unless Europe addresses its structural problems, injecting cash — such as the chunky bailout of Spanish banks — will only postpone the problems. He does not expect a solution anytime soon and sees more issues ahead as he warns that French and German banks hold the bulk of the debt of European peripheral countries. “The German taxpayer will prefer to recapitalize his bank then to pay for the retirement of a Greek who retires at 55, whereas the German retires at 65.” With this cautious stance, he would recommend shorting the euro versus the US dollar.
Short European markets too?
“Exactly the opposite” says Chaoul. He recommends starting to build positions in Europe as he sees a full pricing of the European crisis. This contrasts with the US markets, which has not yet priced in its fiscal problem, according to Chaoul. “The US is coming toward a fiscal cliff which will lead to a huge break on the growth of economy” says Chaoul. As this year is a presidential election year, the Democrats and Republicans have been avoiding tackling this issue and “come November 6 (US presidential election day), they will be left with only five to six weeks to figure out how to fix this fiscal problem.” He states that he won’t be surprised if the US faces another credit rating downgrade.
Top investment recommendations?
With an uncertain and highly volatile environment, Chaoul favors “a flight to safety” and recommends investing in gold and silver. He also strongly recommends that investors start investing in private equity (PE) as he sees huge opportunities in the region, especially in Saudi Arabia and Egypt. He would invest in Syria for its cheap entry point and he sees some “gems” in the manufacturing industry. As for Lebanon, he would not invest in the highly illiquid Beirut Stock Exchange; neither would he invest in government bonds.
Walid Abousleiman
Top recommendations: Short the euro, invest in gold and buy Solidere
More pain in Europe?
Abousleiman believes that Europe is “still in the middle of the crisis” and unlike Chaoul, he would not recommend exposure to any European financial instrument for now, including equities. He would stay on the sidelines and keep an eye on the austerity measures implemented by European governments. Abousleiman recommends shorting the euro relative to the US dollar.
Top investment recommendations?
Abousleiman recommends holding a third of the portfolio in cash or cash equivalents, a third in gold and a third in US large cap equities. He would stay away from fixed income, both government and corporate. As for the Middle East and North Africa markets, he would invest in Saudi Arabian equities and to a smaller extent in Qatari equities. As for Lebanon, he would buy Solidere for its “good entry point” but he would not invest in any other Lebanese stock. He also recommends both government bonds and term deposits, which offer attractive rates.
Thoughts on private equity?
Unlike Chaoul, he would not recommend investing in PE and believes there is no appetite for PE in the region because of the lack of security and political stability. “If you’d asked me, before the Syrian crisis I would say it’s a good investment. For now I’d shy away.”
