As 2012 came to an end and investors wrapped up trades in what proved to be another frantic year, investment strategies were being discussed amongst analysts, portfolio managers and traders to figure out how to position trades going into 2013. Many market issues still lingered, the most prominent being the United States’ fiscal cliff, combination of expiring tax cuts and government spending cuts that were slated to come into effect December 31, if no budget-balancing deal is reached in Washington. For recommendations, Executive sat with Issa Frangieh, head of equities at Blom Bank and Shady Sahyoun, head of private banking at Credit Financier Invest.
> Deploying money in the markets? “I’d be selective,” says Frangieh. He sees more investment opportunities in emerging markets than in developed markets because of higher growth prospects. Within emerging markets, he would be selective too: more cautious on China, which is going through a slowdown and favoring Latin America instead. His favorite countries in Latin America to invest in are Mexico and Chile and he would gain exposure by acquiring cyclical sectors.
> Investing in Europe? “It is tough to call,” says Frangieh, as he expects the current crisis to drag on further. He does, however, believe that the worst is behind us but expects to see further slowdown going forward and would not invest in Europe for now.
> Concerned on the United States’ fiscal cliff? Frangieh believes that US politicians will allow the tax cuts to expire and will come up with different tax cuts. “Right now, [the fiscal cliff’s impact] amounts to 5 percent of US GDP; I think they will reach a solution [costing] 1.5 to 2 percent of GDP,” says Frangieh.
> Thoughts on the MENA region? “The whole area is boiling and it is not that great,” says Frangieh. He is trying to find markets to get into but says it is challenging given that the markets are driven by policy instead of economic growth. His two favorite countries to invest in are Saudi Arabia and Qatar, for their relative stability and the significant government spending programs.
> Top picks in MENA region? In Saudi Arabia, he would invest in the construction and cement production sectors. His top picks are Yamama Saudi Cement Company and Saudi Telecom Company. In Qatar, he would go for blue chips like Qatar Water & Electricity and Qatar National bank. He also likes the Egyptian market but warns it is riskier than Saudi Arabia and Qatar. He recommends investing in Telecom Egypt, which offers an attractive 10 percent dividend yield. He also likes Orascom Construction, which is separating its construction and fertilizer businesses and Frangieh says he thinks this will unlock value.
> Lebanese securities? He likes Lebanon’s perennial real estate giant Solidere, which he believes will be interesting in 2013 with the upcoming Lebanese parliamentary elections, as Solidere stock price is sensitive to political news.
> Top investment globally? Netflix, the US provider of on-demand Internet streaming media, as he expects the company to be bought out by a company such as Amazon or Microsoft.
> Favorite markets? In the medium term, Sahyoun is bullish on the United States and the Far East, mainly South Korea and Malaysia. In the short term, he favors Saudi Arabia for its positive current account, Switzerland for its low inflation and high net foreign assets held by the banking sector, and China where he expects a continued solid GDP growth.
> Top sectors in the US? Sahyoun is positive on the real estate sector due to the improving indicators such as home prices being revised upwards and inventories dropping. As for the fiscal cliff, he recommends adding positions in the markets on weakness, as even if it is “at the last hour of the last day of the end of the year, it will be resolved,” says Sahyoun.
> Thoughts on Europe? He would avoid investments in Europe due to the continuing austerity measures, the high public debt and the lack of economic growth.
> Top asset classes? Sahyoun favors stocks over bonds because they are relatively cheaper. He would invest in cyclical sectors and would add cyclical stocks in 2013. He also recommends owning commodities such as gold as an inflation hedge. For energy, he favors crude oil at least until the regional disorder subsides. In the long term, he recommends food related commodities as he expects a food shortage.
> Lebanese securities? Sahyoun stays clear of Lebanese stocks or bonds. “We don’t see how we are going to avoid turmoil given what is happening in the region, especially in Syria. Add to that our internal economic adversity and also very low liquidity and we have no interest in the Lebanese stock market.”