Global markets that began to rally in mid-November in anticipation of a resolution to the United States’ “fiscal cliff” are now making investors edgy, with major economies still shaky. This month, Executive sits again with Georges Abboud, head of private banking at BlomInvest, and Amer Khan, fund manager at Dubai-based Shuaa Asset Management, for their top investment recommendations.
Should we invest in the markets now? “It is hard because markets went up so quickly,” says Abboud. Still, he would add exposure to the US due to the deleveraging of the financial sector in the past couple of years, the recovery in US real estate and industrial sectors, and the low energy production costs there due to the use of shale gas (which faces heavy opposition in Europe). He is more cautious about Europe, especially with the euro trading at its current levels (the euro dollar rate was at 1.34 as Executive went to print). He recommends starting to place shorts on the euro and adding shorts if it strengthens further to reach 1.40 to the dollar.
Major concern in these markets? “Sovereign debt”, says Abboud. “If you have a sovereign debt problem, you have problems with banks that can’t sustain the debt.”
Thoughts on Middle East and North Africa markets? Consistent with previous recommendations to Executive, Abboud still has an appetite for exposure to Saudi Arabia due to the kingdom’s solid fundamentals. He would also invest in Lebanese equities with a strong preference for Blom Bank — the bank he works for — due to its cheap valuation and solid dividend yield standing at 5 percent.
Top investment tips? At the end of last year, Abboud recommended to Executive readers to short the yen; own Google, Total, General Motors and Nissan for US large cap companies; LinkedIn in the US and Groupe Eurotunnel in Europe for smaller companies; and Blom and Solidere for Lebanese equities. These recommendations generated an average return of 24 percent, assuming the investments were equally distributed. Going forward, he recommends keeping Google, adding LinkedIn and General Motors on any correction, and building exposure to German automotive company Daimler AG.
Thoughts on global markets? Khan expects 2013 and 2014 to be good for equities on a global level given the solid economic data coming out of the US and China. “Two of the largest economies will end up with a solid year and they will pull the world along,” says Khan. As for Europe, he believes it is in nobody’s interest to have a large fallout — be it a Greek exit or a breakup of the currency — and “when push comes to shove, Europe tends to come together and think outside the box,” he adds.
Expect more flows into MENA equities? With not much left in the bond market as yields are at multi-decade lows, “equities are the natural place to invest,” says Khan. He is positive about the valuation of equities in the region and the solid fundamentals of companies with strong balance sheets that operate in economies with no fiscal issues and offering attractive dividend yields. He expects investors to eventually look at the fundamentals and deploy further capital into this asset class.
Favorite countries in the region? For 2013, his top three equity markets to invest in are Saudi Arabia and Qatar, due to their commitments to high levels of government spending, and the United Arab Emirates for the attractive valuation of its stock market.
MENA equity market most likely to surprise on the upside? “If the Egyptian government gets its act together, it could probably be the biggest surprise”, says Khan. He also highlights Amman as another market, which investors have been shying away from recently. “If regional markets were to rally, inevitably people will be looking for laggards and Amman might be it.”
Top sectors in the region? He recommends investing in the UAE banking sector given the banks’ solid capitalization, the valuation discount relative to their regional peers and the attractive dividend yield. He also recommends investing in consumer plays in Saudi Arabia through buying stocks in consumer staples and consumer discretionary sectors, given the government’s spending commitment. He also likes real estate in Saudi Arabia given the country’s housing shortage but would play this theme via the banking sector as real estate companies are low on disclosure.
Top three stocks? Union National Bank in the UAE, electronic retailer eXtra in Saudi Arabia and Qatar National Bank.