Investors should shift their portfolios away from fixed income and focus instead on equities in emerging markets as well as commodities, according to Emirates NBD Wealth Management.
“The trend of investing in fixed income that was prevalent during the last two years is coming to an end,” said Mark McFarland, chief investment strategist, at Emirates NBD Wealth Management.
“Looking at world markets, we see investment opportunities in equities and commodities across the globe, including MENA, where we favour high dividend equities over fixed income,” he said.
In the GCC, as long as there is “confirmation for growth”, the stock markets will perform well, he said.
“In terms of sectors, we are more bullish on petrochemicals,” he said.
Opening up of the Saudi bourse (Tadawul) to international investors as well the UAE markets receiving emerging market status from the MSCI will boost investment in the region, he added.
Real estate in the region is also yielding high returns, with recovery being driven in part by foreign demand.
“We are particularly positive about the property sector in Dubai, where demand is seen rising, particularly in apartment and commercial sectors,” said McFarland.
The upside risks to growth that this region faces include: escalation in geopolitical tensions pushing up oil prices, supply shocks in the rest of the world and a momentum in global growth.
The main downside risk that could hamper regional growth is slower global growth than expected or a worsening of the Eurozone crisis, which would reduce the demand and price of oil.
“In general, we are optimistic about the markets here,” said McFarland.
Currently, for an average client who has a globally diversified portfolio, the bank recommends an exposure of three to five per cent to the Middle East in terms of real estate, equities and other asset classes.
“Investors should only participate in fixed income if they intend to hold their positions for two to three years. We believe that portfolios should focus on bonds that are investment grade, not junk or high grade as these are either risky or too expensive,” he said.
McFarland advised investors to hold over-weight positions in Japanese, Asian, Latin American and Russian equities and avoid US and EU bonds where yields have fallen sharply in the last two years.
From a long-term commodity perspective, he strongly recommended palladium, agricultural, cyclical and industrial vehicles.