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Investors can expect positive returns in 2021 as the vaccine rollout, coupled with massive government spending and low interest rates, will stimulate economic recovery.
“On a tactical [meaning] short to medium term horizon, the backdrop is reasonably positive. 2021 should be about clipping coupons in fixed income and finding capital appreciation in stocks with strong earnings growth,” said Maurice Gravier, chief investment officer of Emirates NBD Group.
However, he said the investment landscape has changed. “We are entering the age of magic money, created by central banks out of thin air to fund ever-increasing government expenses. It bears long-term consequences,” Gravier, who was speaking at the launch of the bank’s Global Investment Outlook for 2021, noted.
“Sources of returns are scarcer with lower expectable levels. Risks have not vanished. Our response includes a higher proportion of emerging markets in the strategic investment mix. Selectivity is another answer, and we will work this year to add more sustainability criteria to our platform,” he added.
Preferred market
Emerging markets are preferred for those seeking returns in 2021, as they move faster, have been less affected by the pandemic as a group and will rebound stronger beyond the post-pandemic recovery.
“But most importantly, they are cheaper. There’s a huge valuation discount compared to the developed market and they are less crowded,” said Gravier.
Anita Gupta, head of equity strategy, added that emerging markets are likely to post an 8.3 percent return per annum over the next decade, compared to 5.9 percent for developed markets.
While volatility is here to stay, Gupta said the sharp investor should use volatility as an opportunity, citing that “if you are not invested, you will not see those 100 percent gains”.
GCC markets
For Emirates NBD, UAE is a definite preference within GCC markets, as there are clear emerging catalysts like valuations, attractive dividend yield and the World Expo, which is set to open later this year.
“[However], we are seeing low trading volumes, that should be mitigated by increased weight in the emerging market indices, as we see companies open up their foreign ownership limits,” Gupta added.
Among various sectors, banking, telecommunications and logistics are the preferred ones. The bank is neutral on real estate.
Satyajit Singh, head of fixed income strategy, said generating returns from a normal fixed income portfolio in 2021 is going to be tough.
However, despite the challenging scenario of steepening yield curve and low spreads, the emerging market and high-yield credit are expected to outperform the developed market bonds and investment grade credit, the outlook said.
(Reporting by Brinda Darasha; editing by Cleofe Maceda)
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© ZAWYA 2021
