After the market trauma of 2011 and the continuing uncertainty, investor expectations heading into 2012 are still sinking, but yet, despite the dread, one must put one’s money somewhere. Thus, for investment recommendations going into the new year, Executive sought the advice of four financial experts: Youssef Nizam, head of equity research at Audi Saradar Investment Bank, Mahdi Mattar, chief economist at CAPM Investments, Georges Khoury, head of private banking at Banque Libano-Française and Mohieddine Kronfol, chief investment officer of fixed income and sukuk at Franklin Templeton Investments (ME).
Mahdi Mattar
Bullish or bearish?
Mattar remains cautious but he still thinks 2012 will improve on 2011. He recommends buying long-term investments “with the stomach to handle volatility,” as he envisions high turbulence amidst ongoing uncertainty in Europe and the deadlock in the United States fiscal debate. The markets are being driven not by fundamentals but by reactions to
policymakers’ decisions, he says.
Thoughts on the Middle Eeast and North Africa (MENA) region going into 2012?
The MENA region and emerging markets in general — especially countries with a fiscal and current account surplus — are in a much better situation than developed markets. He stresses the positive aspects of the region, such as the deep pockets of many governments, their high foreign reserve ratios and favorable fiscal and current accounts on average within the Gulf Cooperation Council (GCC). He cautions that regional capital markets will still be affected by what is happening in the international markets despite their strong economic fundamentals.
Favorite countries in the MENA region to invest in 2012?
Mattar likes the GCC countries. He particularly favors Qatar and Saudi Arabia based on their attractive fundamentals.
Top investment ideas in the MENA region?
His top investment idea remains bonds issued by quasi-government entities in the United Arab Emirates. He likes Taqa, Ipic and to a certain extent Qatar Telecom. He is also looking at high yield bonds that are related to government entities in Dubai, such as Dubai Holding and Emaar. In Saudi Arabia, he is keen on local demand plays, especially in the retail and consumer sectors. His picks in these sectors are Jarir, Al Hokair, Al Othaim and Mobily.
Youssef Nizam
Bullish or bearish?
Nizam is cautiously optimistic. Given massive global uncertainty, he acknowledges that from the second quarter of 2011 onwards issues in the Middle East took the backseat and global problems took the front. “What is steering our car going forward has nothing to do with what is happening in our region,” says Nizam. Having said that, going into 2012 his optimism stems from the already very low expectations for the MENA markets and the relatively attractive valuation. With Brent oil still trading at $110, oil-based MENA economies will continue to fare well, and their governments will be spending money and creating economic activity. Political uncertainty, however, remains the major concern.
What would you buy?
Nizam would invest in companies and environments with the following themes: An increase in governmental spending since the Arab uprisings; oil and gas exploration and production; reconstruction following the collapse of regimes (though this would be post-2012); normalization of banks’ provisions, particularly in Saudi Arabia; high commodity prices.
Your favorite MENA markets for 2012?
Qatar and Saudi Arabia. For high risk, he recommends Egypt as it is down 45 percent this year, and it has a probability of recovery following the elections at the end of 2011, though November’s protests put this assessment in doubt.
Top MENA stocks for 2012?
Nizam would choose three stocks from Saudi Arabia: Maaden as its phosphate plant goes into commercial production in 2012, Saudi Kayan as it is going into commercial production in 2012 and Mobily for lower risk. From Qatar, he would choose two stocks: Industries Qatar for a high beta play and Commercial Bank of Qatar for its defensiveness and high dividend yield.
Georges Khoury
Bullish or bearish?
Khoury expects 2012 to be a very difficult year. “People are afraid and cautious, even at the level of private banking,” he says. He does see some opportunities in these markets for a long-term investment, however, three to four years from now.
Obstacles that the global markets are facing?
Political issues are the dominating factors in what is happening in global markets today. Khoury does not find attractive the potential opportunities as a result of the European crisis, such as the high yields on Italian government bonds, as he prefers to buy in a stable market. “It is not a financial crisis; it is a political crisis. That is the difference between 2008 and 2011.”
Thoughts on the MENA region going into 2012?
Khoury is concerned about the lack of liquidity in MENA markets. He highlights the case of Dubai, where speculation increased after the market was opened to foreigners and subsequently crashed once they opted out. Khoury is only confident about countries in the MENA that are cash rich, such as Saudi Arabia, and Qatar to a smaller extent, but he prefers not to invest in this region.
Top investment idea globally?
He likes equities in emerging markets. Khoury sees good opportunities in Brazil, Russia, India and China. His preferred exposure would be to India, which is “pushing more on what we call middle class family income earning.” He also likes China, though he would recommend investing selectively. Moving to more established markets, Khoury does see potential in American stocks but would stay away from financials and stick to the commodities, pharmaceutical and technology sectors. Within technology, he would invest in the big blue chips that are cash rich such as Intel, Cisco, Apple, Microsoft and IBM. He would also look to invest in potential acquisition targets such as Yahoo and Research In Motion, the makers of Blackberry. However, he would wait for the outcome of Europe’s crisis before investing. “Europe is a disaster; you are talking about 17 to 18 nations with one opinion and several central bank governors and finance ministers. In my view this is not something you can really rely on to take the right action in the market,” he says.
Mohieddine Kronfol
Bullish or bearish?
Kronfol expects a positive year for equity markets in 2012, “albeit with significant headwinds.” He says, “with interest rates at very low levels and central banks predisposed to additional quantitative easing, equity markets and risk assets generally should deliver positive returns.”
Main challenges the global markets are facing?
Confidence is the principal difficulty for markets and certain economies. It is becoming increasingly critical, he says, to make tangible progress on structural reforms that address weak competitive conditions, high unemployment, poor governance and the inefficient allocation of capital.
Thoughts on the MENA region going into 2012?
Kronfol is upbeat about the MENA region because of the attractive valuations, the expectation for positive economic growth at a faster pace than the world average, the balance sheets of GCC governments where banks are unleveraged and the high level of oil prices, which are likely to remain near $100. Naturally, these positive drivers are impacted by global economic and financial agents, political turmoil at home and other developmental challenges. But, he says, “For long-term investors, we are at attractive levels.”
Your favorite countries in the MENA region for 2012 and your top investment ideas?
Saudi Arabia, Qatar and the UAE. He likes sovereign, financial and corporate bonds and sukuks. He also likes financial and consumer discretionary stocks.
