Last month new banking scandals came to the forefront. JP Morgan announced first-half trading losses of $5.8 billion amidst intensifying fraud investigations, while Barclays was engulfed in a rigging scandal regarding the London Interbank Offered Rate, which saw heads roll — including that of CEO Bob Diamond — with investigations potentially expanding to nearly two dozen banks. The European sovereign debt crisis is still heated, with Spain approving yet another austerity package — its fourth in seven months — and receiving a 100 billion euro bank bailout. For investment recommendations, Executive sits again with Khaled Zeidan, general manager of MedSecurities, a BankMed subsidiary and Ammar Bakheet, head of asset management at Bank Audi.
General market thoughts? Zeidan is somewhat bullish and expects stock indices to end the year on a positive note. “Maybe up between 9 to 12 percent but in the meantime it could be choppy,” he says. He believes that there will be further stimulus from the United States because “the economy needs this.” He would avoid investing in Europe as he believes that we have not seen the worst yet. “I think there is no political will today to resolve this issue,” he adds.
Favorite asset classes? Last September, Zeidan recommended investing in both equities and bonds and now he recommends keeping a balance between asset classes with a slight preference for equities over bonds. With risk premiums up and with a positive correlation between the two asset classes, choosing one asset over another becomes “sort of insignificant” according to Zeidan. The only asset class which remains unhurt is cash but its “problem is that it is experiencing slow death which you don’t see; it’s like aging. You don’t feel it; then you see a friend you haven’t seen for 10 years and you realize that this is how they probably view me; that’s the problem with cash.”
Thoughts on the MENA region? His view on the region’s top markets have not changed from last September as he still likes Saudi Arabia and Turkey, but he is also adding Egypt now as he expects the markets in this country to recover as “ultimately the Muslim Brotherhood are red-blooded capitalists. One of the main figures is Khairat al-Shater, one of the wealthiest men in Egypt.” Another MENA market he finds interesting is Iraq and he wouldn’t be surprised to see an “astounding performance” once the proper structure for equity markets is in place.
Thoughts on Lebanese securities? He would only buy Solidere as he believes it is cheap and undervalued (to keep everything above board, it should be noted here that BankMed is one of Solidere’s largest shareholders). Once there is a resolution in Syria, “Solidere will be limit up [limit on the shareprice] for three to four days. You need to be willing to make that bet and I think its reasonable given that your downside is limited,” adds Zeidan.
General market thoughts? Bakheet is risk averse and says investors generally are not excited about risky investments either, such as equities, due to the sovereign debt crisis in Europe, the slowdown in the economy of China and emerging markets. He would prefer being exposed to the US markets over Europe as he believes “Europe will be in a mess for a while.” Within Europe he would favor safe companies with solid earnings, good balance sheets and high dividend yields such as food manufacturer Nestle or pharmaceutical company Roche.
Favorite asset classes? In September, Bakheet recommended high quality fixed income bonds and blue chip companies. Now he recommends starting to gradually add exposure to the equity markets as they are at “very attractive levels.” He favors high quality stocks with solid dividends.
Thoughts on MENA markets? Bakheet is still sticking to the same countries he recommended last year: Saudi Arabia (SA) and Qatar because of their solid fundamentals, attractive valuations and dividend yields. As for Egypt, he prefers to see signs of stability before stepping into this market. He would invest in the telecommunications, banking, food and beverages, retail and cement sectors both in SA and Qatar. His top picks are Saudi Arabian telecommunications company Mobily — which he recommended back in September and is up 20 percent since — Al Rajhi Bank in SA and Qatar National Bank.