Bonds, gold remain safe haven

Dubai - Emirates NBD outlook says 2016 will be a very tough year for investors

It's going to be another challenging year for investors but bonds, sukuk and gold are comparatively safer investment options in 2016, advised newly appointed chief investment officer of Emirates NBD Wealth Management Gary Dugan.
The Dubai-based bank's wealth management unit on Wednesday released its '2016 investment outlook' and Dugan said it is an advisory blueprint covering investment opportunities and key indicators across the world economy and financial markets.
The outlook said 2016 looks like it will be a very tough year for investors. "We are very selective in buying any risk assets," Dugan said, adding: "We prefer safe bonds, sukuk, and gold."
"Amongst bond markets, emerging market debt and global high yield have had serious price drops, bringing them closer to a level that we believe will offer genuine good long-term value to investors," he said.
The chief investment officer believes that there would be opportunities down the road and also dramatic repricing in bond markets. Investors were advised to keep at least 10 per cent of portfolio in gold. Gold price witnessed over seven per cent increase this year.
He informed a big shift in investors' expectations in terms of returns nowadays compared to a few years ago. In the past investors used to ask for 15 per cent return but now they are okay with two-three per cent returns.
He pointed out that policy makers are still actively involved in supporting economies six years after the asset markets started their recovery, yet global growth continues to disappoint.
"Our advice is to remain defensively invested and wait for true value to appear in the valuation of risk asset markets before committing to any further significant purchases," he added.
This year will be different to 2015 even if for only one reason, that the Federal Reserve is already on a path of increasing interest rates, he said, adding that whilst other central banks are still running easy money conditions, higher US interest rates will undoubtedly detract from global growth. The risk is of the dollar becoming significantly overvalued.
In Mena markets, equities have fallen a long way but remain on valuations that are well above previous distress levels. "It doesn't mean that we necessarily see valuations back to previous floor levels, but that is the kind of value we seek given that the region is facing tremendous challenges from low oil prices, elevated fiscal deficits and weak growth. The good news is that necessary reform programmes have been accelerated which can only be good news for the region over the long term," Dugan explained.
The report said in the emerging markets, India is still a standout. Whilst 2015 was a year of disappointment in respect of reform the country is still slated to achieve medium term economic growth of seven per cent per annum. It is also one of the few countries that has still the ability to cut interest rates consistently over time.
"We expect China to remain a perennial problem for the markets although we don't believe the very negative views that are expressed by some commentators, he said.
abdulbasit@khaleejtimes.com

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