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Home » 2015 » Issue 32 March / April 2015 » MENA equity markets to face challenges

MENA equity markets to face challenges

Gary Dugan, global wealth chief investment officer and head of investment strategy

Gary Dugan, global wealth chief investment officer and head of investment strategy

Equity markets in MENA are to have a challenging 2015, according to a National Bank of Abu Dhabi (NBAD) report entitled Global Investment Outlook – 2015, written by Gary Dugan, global wealth chief investment officer and head of investment strategy, assisted by a team of other experts at the bank.

It says that “lower-than-expected oil prices will continue to adversely impact market performance, as would any increase in dollar interest rates, should this occur.

“Structurally, however, local financial markets will nonetheless continue to mature, in time bringing more sustainable inflows of foreign capital.”

The report adds that MENA bond markets remain a key focus for local liquidity, and should see good support given very low yields elsewhere.

On a more general front, the report says, “The financial system may feel as if it is in a better place, with balance sheets generally stronger, but too many countries still have complex structural problems in their financial systems, while policy makers continue to rely upon extraordinary measures to support their economies”. It continues, with the view that “the easy money has been made in the financial markets”.

Dugan said that it was expected that the better performing developed markets would be those where policy makers spring the biggest positive surprises. “In this context, Japan is already delivering, with a significant upscaling of quantitative easing. Looking elsewhere, the eurozone has the greatest opportunity to surprise, especially now that the European Central Bank has finally moved on quantitative easing.”

The report adds that many governments around the world are expected to significantly increase their spending, and especially by way of expenditure on infrastructure, leading to opportunities for investors.

In the view of the authors, India looks like “the only convincing investment in the emerging equity markets. It is expected that strong political leadership there will deliver continued structural reform, while likely further reductions in interest rates suggest good performance from bonds and equities”.

Dugan and NBAD team continue to advise investors to focus on countries and sectors where there is natural and consistent growth. “Sectors such as healthcare and technology are especially favoured, as they have displayed consistently strong growth in recent years, which is expected to continue.

“Meanwhile, investors are encouraged to place increasing emphasis on risk management, rather than chasing returns.”

In this respect, the report discusses some basic guidelines that should help investors maximise returns “in this time of economic fragility”.

Lastly, the report expresses a bullish view on gold, and encourages investors to align their portfolios accordingly. “As many currencies continue to be actively debased by their respective central banks, gold is very likely to benefit as investors return to it with enthusiasm as a reliable store of value…during periods of volatility in markets”.

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