Emerging market, bonds and equities have bright prospects
ABN Amro headquarters in Amsterdam. The bank's chief invesment officer Didier Duret said Brexit economic impact will be progressive and remain uncertain, but is probably less negative as the process will be adaptive.
Dubai - Brexit economic impact will be progressive and remain uncertain
Prospects for emerging markets and Asian economies, bonds and equities are bright and offer good opportunities to investors to diversify their investment in the wake of volatile oil and commodities, an expert says.
Didier Duret, chief investment officer, ABN Amro Private Banking, said the chances of China entering a hard landing are remote amid considering the huge stimulus and coherence of policies put in place over 2016.
"ABN Amro Private Banking has a positive view on emerging market and in particular Asia, we think that Asia will benefit from a second wave of international investor interest less marked by the underlying trends in oil and commodity prices and more on industrial and cyclical reasons," Duret told Khaleej Times during his visit to Dubai last week.
He said emerging market investment and bonds can provide effective source of diversification and positive return at a reasonable valuation, most of them are trading at a discount to the developed market peers.
"Middle East and Africa as a gravitational point for world trade in the case of Dubai should benefit for intra emerging market trade," he said.
Duret said Brexit economic impact will be progressive and remain uncertain, but is probably less negative as the process will be adaptive.
"Because the Brexit will take time, its impact will be smoothed out and economic agents will have the time to adjust. The expected partition of UK from EU will revive the role of NATO in international affairs where a common ground towards the Middle East will be easier to found.
"For UAE exporters there is more currency risk to be managed in the short term, but currency markets are rather stable so the short-term effect looks rather muted for the foreseeable future."
To a question, he said investors should remain open to opportunities as the multiyear search for yield remains a strong driver for equity prices despite short term bust of volatility caused by fears such as the Brexit, the US election of the political changes in the European Union.
"Preferred segments are in sectors driven by long-term trends of profitability such as IT, HC and consumer staples. A larger than usual buffer of cash is necessary to benefit from negative price action," he said.
He said diversification has to take consideration of low and negative rates, low growth in developed markets and higher political risk, commodities and emerging markets equities and bonds could play this role in portfolios.
Fed, US election
Duret said the US Federal Reserve is rather sensitive to conditions outside the US to continue its rate normalisation. A new fiscal stimulus is the most logical and effective way to provide a new impulse, it will relieve central banks from their oversized responsibility to stimulate growth and the financial markets. "The fiscal multiplier, how much the economy will respond to a one dollar spent is probably higher in a low interest rate environment.
"If monetary policy has become less effective, the fiscal stimulus is now more effective. The winning countries will be the countries ready to have the fiscal and monetary policy working in tandem, China is one of them, as well as the UK and of course the US."
In reply to a question about US elections in November and throughout Europe in the rest of 2017 and how it would impact the Middle East region and the UAE, he said sudden bust of volatility caused by the US election of forthcoming elections in Europe later in 2017 will offer opportunities to companies in IT, HC and consumer staple and emerging markets.
"A lower US dollar will provide opportunities to invest in US assets and emerging market assets. The risks are known (essentially political and link to the US rates) only the consequences remain uncertain and specific diversification remain a trivial but necessary approach," he said.
He said both top candidates in US elections are expected to be heavy public spenders, which should support firstly the US domestic economy and the rest of the world considering the massive size of the US economy.
"The question remains open is the trade protectionism, rhetoric will become a reality. We judge it is a more a pre-election propaganda as pragmatism will prevail. In the worst case scenario of a strong protectionism, it will favour regional trade blocks and Asia may again represent a hedge against this risk. As Middle East has strong link to Asia, the effect of trade protectionism could be mitigated," Duret concluded.