27/01/2015 14:18 AST
Mena equity markets will have a challenging 2015, while lower than expected oil prices will continue to adversely impact market performance and bond markets remain a key focus for local liquidity, a report said.
Mena equity markets will have a challenging 2015, while lower than expected oil prices will continue to adversely impact market performance, as would any increase in dollar interest rates, a report said.
Structurally, however, local financial markets will nonetheless continue to mature, in time bringing more sustainable inflows of foreign capital, added the Global Investment Outlook for 2015 published the National Bank of Abu Dhabi (NBAD).
The report says Mena bond markets remain a key focus for local liquidity, and should see good support given very low yields elsewhere.
“The financial system may feel as if it is in a better place, with balance sheets generally stronger, but too many countries still have complex structural problems in their financial systems, while policy makers continue to rely upon extraordinary measures to support their economies,” said the report written by Gary Dugan, Global Wealth chief investment officer and head of Investment Strategy at NBAD.
“The easy money has been made in the financial markets,” Dugan said.
Dugan expects the better performing developed markets to be those where policy makers spring the biggest positive surprises. In this context, Japan is already delivering, with a significant upscaling of quantitative easing. Looking elsewhere, the eurozone has the greatest opportunity to surprise, he says, especially now the European Central Bank has finally moved on quantitative easing.
The report added that many governments around the world are expected to significantly increase their spending, and especially by way of expenditure on infrastructure, leading to opportunities for investors.
In the view of the authors, India looks like the only convincing investment in the emerging equity markets. It is expected that strong political leadership there will deliver continued structural reform, while likely further reductions in interest rates suggest good performance from bonds and equities.
Dugan and the team continue to advise investors to focus on countries and sectors where there is natural and consistent growth. Sectors such as healthcare and technology are especially favoured, as they have displayed consistently strong growth in recent years, which is expected to continue.
Meanwhile, investors are encouraged to place increasing emphasis on risk management, rather than chasing returns, the report said.
The NBAD report discusses some basic guidelines that should help investors maximize returns in this age of economic fragility.
Dugan has expressed a bullish view on gold in the Outlook, and encouraged investors to align their portfolios accordingly. As many currencies continue to be actively debased by their respective central banks, gold is very likely to benefit as investors return to it with enthusiasm as a reliable store of value - and probably much more than this – during periods of volatility in markets, he said.
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