Yong Wei Lee, the head of regional equities trading for Emirates NBD Asset Management, discusses the profession and gives his take on the state of the markets.
What is the asset class and geography you are focused on?
I manage equities that trade in the Middle East and North Africa region. This would primarily be stocks of companies based in Saudi Arabia, UAE, Qatar, Kuwait, Oman and Egypt.
What is the outlook for the year ahead in your opinion?
Markets such as the ADX and DFM in particular have had a very strong rally for the year. These markets are up 36 per cent and 45 per cent respectively, making them some of the best-performing markets globally so far. While there are fundamental dynamics supporting this rally, such as recovery in tourism, trade, bank profits and real estate demand, the run-up does seem to be a little too hard and too fast. I would expect some consolidation in these markets, especially during the summer months. If this scenario pans out then we could see markets pick up again towards the fourth quarter. As for Qatar and Saudi Arabia, the performance for the year has been more moderate, up by 7 per cent and 8 per cent for the year. This is reasonable given the steady growth in these markets where domestic demand is reflected in growth in bank loans, consumption and construction activities. I do expect both these markets to continue to do well heading into the second half of the year, although a marginal pull-back over the summer months would not be unexpected.
What are the main risks (either upside or downside) to the outlook?
If the UAE and Qatari markets are upgraded by MSCI from the frontier to the emerging market index, these markets would respond positively. Similarly, if the Saudi market was to open up to direct foreign investment we would see a huge inflow from numerous global institutional investors into that market given its depth, liquidity and economic growth. The key downside risk to my base scenario would be a significant decline in oil price given that the budget breakeven levels in the region are about US$80 a barrel. This would likely be perpetuated by a sharp decline in global economic growth, which at this juncture is not a high probability scenario. Ironically, this augments the risk even further when an unexpected event occurs. Another possible risk to my scenario would be a sudden rise in geopolitical tension in the region.
What is the best investment at the moment in your opinion?
Given an investment horizon over the next three to five years, I think the domestic theme for Saudi Arabia would yield healthy returns. The country has a very young population and the need for social infrastructure spending by the government is crucial. This is easily affordable for a country with over $650 billion of forex reserves that accumulated mainly from oil exports. I would expect the consumer, building materials, telecom and banking sectors to benefit from this theme.
What was the best investment you were ever involved in?
A good investment from recent memory would be buying into Saudi cement and consumer stocks soon after the Saudi government announced investments of $135bn to create jobs and homes for nationals. This was sometime in March or April 2011. Some of these investments have seen returns of over 100 per cent at current prices.
What was the worst?
My worst investment would have been in 2008 during the global financial crisis. When markets were freefalling in the second half of 2008, I was slow in reducing my cyclical positions. I was of the opinion that the region would be immune to the impact of the global economy given its strong financial position. However, I failed to recognise that at the core of the crisis was a freeze in global liquidity and that's the kiss of death for all equity markets, regardless of geographic position. This is further evidence that over the last two decades, the world has become financially integrated.