On January 1, news anchors were switching between covering the New Year’s celebrations from cities around the world and analyzing the United States politicians’ tackling of the fiscal cliff — the combination of tax cuts and government spending which were due to expire the day before. Many were hoping 2013 would bring an end to the market turbulence of the previous 12 months. For this month’s investment recommendations, Executive sat with Raed Khoury, general manager at Cedrus Invest Bank, and Mark Daher, general manager of Forex Capital Markets MENA.
> Favorite asset classes in 2013? Khoury expects 2013 to be more challenging than 2012 from the markets’ perspective. After a solid performance for fixed income in 2012, he no longer recommends exposure to this asset class as “their yields are so low and we are starting to reach a bubble in fixed income.” He sees opportunities in high-yield corporate fixed income and is looking to launch a fund specialized in this asset. He also recommends selectively investing in US equities that he expects to increase by another 10 to 15 percent this year, and favors cyclical sectors. Alternatively, he recommends selling ‘put options’ — right to sell at a specified price at a specified time — on “whatever we believe are good equities.”
> Key concerns? His chief concern is political risk in the Middle East and the psychology of investors, as they are still very reluctant to buy equities. Khoury, however, believes that a large amount of liquidity will find its way into equities. With retail investors no longer interested in this asset class — having been burnt in 2008 — it is an opportunity for other investors to come in, given that “you have to follow institutional investors and when retail comes in you should sell,” he adds.
> MENA thoughts? Khoury is not yet ready to start heavily investing in the region but is looking into opportunities, mainly in Iraq and Saudi Arabia.
> Opportunities in Lebanese securities? Khoury believes Lebanese banks would be good investments as they are trading very cheaply. He also likes Solidere and believes that the potential upside outweighs the downside risk.
> Top investment ideas? Caterpillar, the world’s largest maker of construction and mining equipment; Nestle, the world’s largest food company; and Microsoft, the world’s biggest software maker.
> Time to buy the markets? Daher does not believe turmoil in America is behind us yet. “In the beginning of March, the US will hit the debt ceiling again and you will have the fiscal cliff all over again.” Having said that, Daher would be buying US equities that he expects to end on a higher note over the next quarter as the debt ceiling is dealt with. “As you saw with the fiscal cliff, at the last minute, they kick the can down the road,” he adds.
> Favorite regions? Daher favors the US markets and specifically the US housing market. “When the housing market picks up everything picks up; it’s one of the main indicators of the US economy,” he says. As for emerging markets, he would invest in India for its limited inflation, and gas-abundant Russia for the prospects of a higher gas price.
> Europe? Daher would shy away from European government debt despite the attractiveness of the yields — with Spanish debt offering around 5 percent (as Executive went to print) — as he expects reform implementation to remain a key risk for investments in Europe. If he had to deploy capital in Europe, he would favor the acquisition of some cyclical sectors such as energy.
> Favorites assets? Daher favors US equities over fixed income and within equities, he is bullish on financials, especially mortgage origination and servicing companies, as well as development companies. As for metals, he is very bullish on gold and would invest in gold equities this year given their underperformance relative to gold price, as well as silver. Given his bullishness on gas, he also recommends acquiring Russian company Gazprom, but warns that it comes with Russia’s political risk. “If [Russian President Vladimir] Putin wakes up tomorrow feeling like he wants to own Gazprom, he will”. As for foreign exchange, he would short the Japanese yen following the appointment of a new Japanese government elected on a campaign to weaken the yen, adding “it might end up being one of the trades of the year.” (Daher’s comments were made prior to the Japanese government approving a $116 billion economic stimulus package on January 10, which weakened the country’s currency.)
> Top investment tips for 2013? Buy gold and silver, short the yen and gain exposure to the US housing market.