Special Features
Emerging Economies To Grow In 2012, Despite Global Uncertainties, Says Emirates NBD Private Banking
Investors should look to industries with strong long-term structural growth prospects, including energy, pharmaceuticals and technology. Brazil, China and Russia equities will emerge strongest. Local investors should diversify with emerging market bonds and keep cash for opportunistic investmentIn the majority of the emerging market countries, with the exception of China and Russia, demographics provide a solid basis for further strong growth well into the future, according to Emirates NBD, the Middle East’s leading bank.
“We believe that emerging markets will continue to grow, despite challenging conditions globally,” said Gary Dugan, Chief Investment Officer at Emirates NBD Private Banking.
According to Dugan, even if the eurozone is in recession and struggling to make headway, emerging markets should continue to see solid economic growth, underpinned largely by demographics, including a young, vibrant population that is still growing in the Middle East.
On the outlook globally, he said that many challenges lie ahead as the world comes to terms with the ongoing pace of structural change. Describing 2012 as “a year with many imponderables,” he said there are numerous issues facing investors, and that the range of potential outcomes is greater than those faced for many decades.
“There will be questions for investors surrounding the eurozone, US efforts to cut its deficit spending, Japan’s paying of low interest rates on its debt, against a bleak long-term economic backdrop, the possibility of further phases of the Arab Spring in 2012 and its impact on the GCC markets,” he said.
Amidst these uncertainties, Dugan advised that 2012 is a year to “invest in what you know to be true, rather than what you hope to be true.”
“Investors should look to regions and industries that have strong long-term structural growth prospects, rather than trying to second-guess what is going to happen in the eurozone,” he continued. “Growth sectors to look out for include energy, pharmaceuticals and technology, which will offer long-term opportunities for investors.”
On the equities front, he remained skeptical about the early months of 2012, but said that there is sufficient money in the financial system and sufficient growth in the global economy for the world to get on to a better footing at some stage. When the time comes, investors should look for buying opportunities in Brazil, China and Russia. The prospect of lower interest rates and other growth-supportive policies in these countries should ensure positive returns.
With so much uncertainty in the world, bonds are likely to remain the asset class of choice for many, but investors must be selective. “With yields so low in the ‘safe’ bond markets of the US, Germany and UK, we would encourage investors to look more to the corporate bonds and emerging market bonds,” said Dugan. “In the GCC, bonds and equities are more highly correlated than before. Local investors should diversify with emerging market bonds and keep cash for opportunistic investment.”
He encouraged staying liquid by keeping larger cash, or near-money balances than in the past, but cautioned that cash will remain a place to hide, rather than make significant returns.
Finally, he urged investors to remain agile. “Don’t get anchored in your views,” he warns. “The world is changing very rapidly. Many companies are challenged by the pace of change around the world, and only some are making the necessary changes to remain competitive. What was a good investment in the past may be an irrelevant investment in the future.”
