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Envisioning the start of 2012, investors across the Middle East probably could not have conceived of a more nightmarish scenario if they tried. The European debt crisis, Arab revolutions and election year posturing in the United States are just some of the many monsters ready to jump from the closet and under the bed as they lay awake at night. For advice on how to keep your cash safe from these creatures of havoc, Executive spoke with Tareck Farah, chief executive of MENA Invest, and Amin el-Kholy, head of asset management at Arqaam Capital.
Tareck Farah
Bullish or bearish? “Cash is king,” says Farah as he explains his bearish stance towards the financial markets. He prefers to hold cash, especially in the first six months of 2012. Within developed markets, he prefers to be exposed to the United States where there is at least some confirmation of growth relative to Europe, which faces a “deleveraging process that might take longer than we imagine.” He believes that investor confidence could still go lower as the European crisis deepens. In emerging markets, Farah believes there will be a squeeze in liquidity in the first half of the year but expects this to ease towards the end of the second quarter, and would start picking stocks in these markets then.
Favorite asset classes? While Farah stresses that he would keep a high level of cash in these uncertain times, he likes the corporate credit of solid US and European companies and would stay away from sovereigns and financials. On the equity side, he recommends the US healthcare sector for its defensiveness and likes Medtronic, United Health Corporation, Johnson & Johnson, Élan Corporation and Boeing in the heavy industry sector. He also recommends the US telecommunications sector on the back of the social network boom this year, with major initial public offerings expected, such as the much-hyped Facebook offering. In this space, he highlights Constant Contact, a provider of social media tools.
Thoughts on the MENA region? Farah is not particularly hot on any MENA market, with the only one he would consider investing in – if it falls to lower levels – being Saudi Arabia for its solid growth potential, high global oil prices, significant government spending in 2012 and population growth. His favorite sectors are cement and petrochemical.
Thoughts on Lebanon? Farah would not invest in Lebanon’s financial markets. He is concerned about the exposure of the Lebanese banking sector to Arab countries facing turmoil. On Solidere, he believes it is not expensive at $14 and if it falls further, it becomes a no brainer. As for Lebanon’s debt, he finds it expensive relative to global market conditions and it does not reflect the Lebanese reality. Farah believes rates should be higher given that Lebanon is “not a producing country, has a single B credit rating and 100 percent of its [territorial] frontiers have issues.”
Top pick globally? He stresses on cash as he says, “The intelligent investor would be the one who can better manage his cash.”
Amin el-Kholy
Bullish or bearish? Kholy is neither overly bullish nor bearish. He is selective in these uncertain markets, as he believes that we are now facing a binary scenario. He stresses that in these markets it is essential to be selective and able to react quickly as we get more clarity on the possible scenarios. Kholy is not too concerned about the Arab political situation as “the risk is already out there.” He is more worried about what the new normal will look like once the European debt crisis and the global uncertainties are resolved, and how it will impact the commodity space, emerging markets and the MENA region. He also highlights the geopolitical risk in Iran as a key issue to be resolved before he can be more bullish on the MENA markets.
Favorite asset class? Kholy believes that both fixed income and equities present attractive opportunities. He is particularly interested in solid names in the MENA region, which offer high dividend yields. He likes the Gulf Cooperation Council region, as it enjoys a favorable economic environment.
Thoughts on MENA markets? Kholy would be bullish but selective in trying to find interesting opportunities. The only factor that could impact his stance in the region is geopolitical risk stemming from the Iranian situation. His favorite countries to invest in would be Saudi Arabia and for a slightly contrarian pick, he would recommend the United Arab Emirates. In Saudi Arabia, he would invest in the retail and banking sectors. In the UAE, he would also look into investing in the banking sector.
Top global picks? Kholy likes gold or US dollars, but which depends on the scenario that pans out over the course of the year. In a more favorable scenario in which inflation picks up, he expects gold to be popular again. In a less favorable scenario, he would invest in the US dollar, especially via high-yielding GCC fixed income.
