Gulf equities attractive in terms of earnings

Dubai: The premium segment of Dubai’s property market could get a boost from refugee capital inflows from countries that are facing political turmoil, said Gary Dugan, Chief Investment Officer and Acting General Manager, Private Banking, Emirates NBD.

Commenting on the investment opportunities within the region and across global markets Dugan said: “The premium segment of Dubai’s property sector is likely to get a boost from capital inflows from some of the countries that are facing political turmoil in the region.”
Across the world there are selective investment opportunities in the property sector with the UK and Northern Europe showing signs of strong recovery, he said.

Gulf equities look attractive in terms of both valuation and corporate earnings. Despite the political turmoil, the Middle East and North African (Mena) markets are set to improve, while Europe’s crisis worsens in the shadow of credit defaults.

Production gaps

The developed world, according to Emirates NBD officials, is hampered by large gaps in production output, high unemployment and now the added complication of rising global inflation and commodity prices, is lagging the recovery in emerging markets.

“Overall, Mena markets provide attractive opportunities for investors in 2011 when growth will be well into the recovery phase,” said Mark McFarland, Emerging Markets Economist, Emirates NBD.

“To further boost recovering capital flows in Mena, incentivised return of capital to the region is much needed as monetary growth has yet to recover outside of Qatar.

With the impact of rising oil prices trickling down to businesses, Emirates NBD officials expect credit growth to pick up momentum this year. “Oil prices are predicted to remain high, which will bode well for infrastructure spending in the region,” said Dugan.

He said the recovery in the global economies combined with strong growth in emerging markets, crude oil prices are expected to average $76-88 per barrel in 2011.

Emirates NBD officials have advised caution on investing in both the emerging market equities and developed world equities.

“Local equities still prove attractive, but investors should wait before buying emerging market equities, which face near-term challenges and equity prices in general are no longer as low as they were. Investors are advised to buy global developed market equities but with care,” said Dugan.

Rising inflation

Although leading emerging markets including Brazil, Russia, India and China still have strong growth fundamentals, in short to medium term all these economies are facing rising inflation and possibility of interest rate resetting by central banks.

“The interest rate adjustments by central banks to rein in inflation could have a negative impact on equity prices while capital control introduced by some the emerging markets also could work against share price appreciation,” said Dugan.

Equities: Bonds, commodities safer

While Emirates NBD’s private bank officials have advised caution on both developed markets and emerging market equities for the next three months, they have recommended emerging market bonds, high yield bonds and commodities to diversify portfolios.

“Inflation is likely to keep upward pressure on interest rates and yields in the emerging markets. So bonds look more attractive for emerging market investors,” said Dugan.

In commodities, he said, gold should continue to be an integral part of portfolios. “As the original store of value, gold is still considered a core asset for wealth management in 2011, especially amid lack of credibility of many global currencies. Keeping gold as wealth preservation rather than for tactical gains is strongly recommended,” Dugan said.

“In the metal markets gold and silver are undergoing some selling pressures, but a stronger global demand for industrial metals is meeting a well supplied market in aluminium, nickel, zinc and lead, which are all expected to see strong supply growth.

Would you invest in property in the UAE based on a potential boost in the real estate market? Or would you wait until you see a real change?