Amid oil rout, investors urged to look at developed market equities in 2016

Amid a rout in oil prices, asset managers have been advising clients to increase exposure to developed markets equities.


Saturday, Jan 02, 2016

Dubai: Amid a rout in oil prices and divergent monetary policies globally, asset managers such as the UBS, Union Bancaire Privee among others have been advising clients to increase exposure to developed markets equities.

US markets have been on the way up, gaining close to 100 per cent since the central bank decided to keep rates steady, while European equities have gained 51 per cent in the same time period.

Favouring Eurozone and Japan, UBS expects equities to post a return of 7 per cent, where central banks are set to maintain easy monetary policies. This rally would be supported by a moderate acceleration in global growth, rising earnings, healthy corporate balance sheets, and continued central bank stimulus, said Mark Haefele, Global Chief Investment officer Wealth Management at UBS said in his 2016 outlook.

Other asset managers such as Union Bancaire Privee, and Emirates Investment Bank also like developed markets.

“We believe that the outlook is brighter for developed countries than for their emerging counterparts. This is particularly true for the Eurozone, as its stock valuations are decent, its central bank’s policies are accommodative, and its underlying economy is starting to gain traction,” Jean-sylvain Perrig, senior managing director and head of asset allocation and chief investment officer, private banking with Union Bancaire Privee told Gulf News.

Union Bancaire Privee’s favourite theme remains technology, where valuations are still attractive, especially when compared to the potential for supplementary growth. The asset management firm also likes the health care sector, which they feel could pick up some of its lost momentum, as fundamentals appear unaffected after the recent underperformance.

“More generally, we like growth stocks, which can also be found in the consumer discretionary sector, given that sustainable and above-average earnings growth will continue to be rewarded with significant premiums,” Perrig added.

Harsh year for emerging markets

Driven by concerns over China, 2015 was an extremely harsh year for emerging markets. However, according to Perrig from Union Bancaire Privee the concerns should gradually abate thanks to the range of stimulus measures applied across several sectors, and as domestic consumption and investment are already showing signs of bottoming out.

“A rise in rates and a strengthening dollar should continue to weigh on emerging markets’ performance, and a potential credit event or threats to a few large banks would not come as a surprise; however, a general collapse of emerging economies and a systemic crisis seem unlikely,” he added.

Chinese main index shed almost 50 per cent from its June peak of 5,000 points.

Gulf markets:

Amid all the certainty, equity markets in the Gulf may provide select opportunities.

“The banking sector would stand to benefit in the longer term. As rates begin to rise, they are able to charge higher rates on the other side. The banking sector is cheap at the moment, but it has general issues about the economy being slow at the moment. On an overall basis, the banking sector is probably slightly better placed in the UAE,” Saleem Khokhar, head of equities at National Bank of Abu Dhabi’s asset management group told Gulf News.

Other stocks that would perform would be the dividend paying stocks such as etisalat, du among others, Khokhar added.

Oil revenues

The Dubai index has shed more than 20 per cent in the past one year mainly due to falling oil prices. Saudi Arabia gets 90 per cent of its revenues from oil, while the UAE gets a third of its revenues from the commodity.

“We still rely on oil to a certain extent, and need to diversify the economy. The issue is that investors co-relate our markets with oil. I expect Saudi Arabia to be largely impacted by oil,” Nadi Bargouti, managing director asset management.

Bargouti said the DFM and ADX should diversify from the mainstay sectors such as banks and real estate, to focus on companies with domestic consumption.

“We continue to have a cautious view on the region, and we won’t change our view for the next couple of months. There are many headwinds going forward, and we’ll have to see more government budgets react to these headwinds,” said Bargouti.

“It’s more important than ever now to diversify the portfolio, and be as active as possible, and also selective in picking up stocks. You need to look beyond our region and the traditional asset classes going forward,” he said, adding, “one has to prudent in decision making. Don’t expect to make money if valuations are attractive, there are a lot of factors, psychological and others, that will play in how markets behave going forward,” he said.

By Siddesh Suresh ?Mayenkar Staff Reporter

Gulf News 2016. All rights reserved.

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