Markets appeared to be on the downward slope of the rollercoaster last month. After rallying following monetary easing measures in the United States and in Europe in September, markets have headed back down as companies report their third-quarter earnings, with some corporates guiding the market lower. Executive sat with Abdulla al-Hosani, general manager of Emirates NBD Securities, the brokerage arm of Emirates NBD, and Nadim Kabbara, head of research at FFA Private Bank for investment recommendations.
Abdulla Al Hosani
In which markets would you buy?
Hosani would invest in three regions: South America, for its significant growth and increasing population, the Far East (mainly China), which he says is still booming, and the Gulf Cooperation Council (GCC), where Hosani is seeing investor demand coming back. For more developed markets, he prefers to wait for now. Hosani is mostly concerned about the unresolved European issues.
Key concerns with these markets?
"Accountability of management” says Hosani. “Management makes a wrong decision and then they take their bonus and leave.” He would also like to see stricter investment banking and auditor regulation.
Favorite asset classes?
Hosani favors fixed income, equities and property in the three regions mentioned above. For property, he would also consider “one of the big cities such as London, New York or Paris if there were unique opportunities.” As for sectors, Hosani prefers exposure to more defensive sectors, mainly the telecommunication sectors across the three regions.
Thoughts on Middle East equities?
His preference would be for markets in Saudi Arabia, the United Arab Emirates, Qatar and Egypt. He likes Saudi Arabia, Qatar and the UAE for their stability and growth potential. In Egypt he sees strong demand from investors following the uprising. He would also recommend investing in Libya and Tunisia.
Top investment ideas?
Hosani believes that “the Middle East would be one of the best areas to invest in if the ‘Arab Spring’ settles, especially Syria.” He would break down his investment in the Middle East as follows: 45 percent in equities, 25 percent in real estate and another 30 percent in fixed income.
Time to buy on third-quarter result weakness?
Kabbara would be selective in what he is buying. He believes that the US’ quantitative easing measures limited the downside of the markets but “it won’t take us forward.” Kabbara is focusing on quality US companies at good valuations and would stay away from Europe as “it is still challenging for now.” He favors betting on increased spending from US consumers, choosing discretionary sectors such as apparel manufacturers and food and beverage.
Kabbara is also waiting to invest in cyclical companies, with a preference for industrial companies such as Caterpillar and Cummins, and technology companies such as Intel. He also likes the US healthcare sector as the baby boomers are retiring and “are going to need more medication.”
Concerned about the upcoming US fiscal cliff (the massive legally-mandated tax increases and spending cuts coming into effect in 2013 if no budget-balancing deal is found)?
“Extremely concerned” says Kabbara. He does not know what US politicians will do and would not be surprised if “they look to do things at the eleventh hour” just like they did with the increase in the debt ceiling last year. “It is a very big headache for the markets,” he adds.
Thoughts on Europe?
Kabbara believes that expectations have risen in Europe following the bond-buying program announced by the European Central Bank in September, and would not invest unless there are selective opportunities. He wants to see “less talking and more doing from Europe’s politicians”.
Thoughts on MENA equities?
Kabbara believes that MENA equities present good opportunities with some companies “trading at very attractive prices to free cash flow with generous dividend yields.” He would avoid countries in the region that are oil importers or that have a lot of political risk, mainly Kuwait, Lebanon, Syria, Bahrain and Egypt. He favors Saudi Arabia, which is looking to use its revenues to boost non-oil sectors. He also recommends investing in Qatar, Oman and the UAE.
Top investment ideas?
His top picks are Spirit Airlines, a US-based regional ultra-discount airline company, and Etihad Etisalat, a Saudi-based telecommunications company that he considers an “attractive way to play Saudi consumer spending with a nice growth profile and cash-flow generation capacity.”