EIBank chief executive says investors should put aside cash amid high global market valuations
Khaled Sifri says cautiously optimistic about regional markets
Emirates Investment Bank, the Dubai private bank also known as EIBank, is advising its clients to put more money aside in cash on concerns that unwinding of stimulus by the US Federal Reserve and European Central Bank that has propelled global equities and bonds to record highs, may trigger market volatility.
“We suggest to our clients that they need to be cautious and suggest to them that they need to be selective,” Khaled Sifri, the chief executive of EIBank said.
“So they should not be investing in indices because the broad market indices are highly valued [based on their earnings ratio] and according to certain metrics they may be in bubble territory.
“In markets you cannot play offensive all the time but sometimes in markets like these you have to play defensive. There are times when we advise our clients to be overweight on cash and this is one of the times you would keep more in cash than you normally would,” he added.
Global stock and bond markets have touched and neared record highs this year amid central bank stimulus and low interest rates that were put in place in the aftermath of the 2008 financial crisis.
In recent weeks the S&P500, the benchmark gauge of US equities, has touched record highs, prompting concern among a number of billionaire investors such as Warren Buffet that valuations are not cheap.
Mr Sifri said that the tightening of stimulus and interest rates hikes that have already begun in the US and is likely to be followed by other central banks of the developed countries in coming years, is likely to lead to a correction but it is difficult to say when.
Despite the downturn in oil prices, slowing economic growth and heightened geopolitical tensions that have impacted regional markets in recent years, Mr Sifri expressed optimism. Many countries were able to support budgets at the current price of about US$50 per barrel of oil.
Moreover, countries such as the UAE have pressed on with the diversification of their economy by reducing energy subsidies and introducing taxes.
“I don’t think current oil prices are at a low level,” he said. “The $100 a barrel oil was an exaggerated number. It gave the impression that it was its normal value. It was not its normal value. That was a bubble. Now we have what is the normal value. And with the price of oil where it’s hovering around now, the budgets of the countries that are producing oil are going to be manageable.
“There is no shortage of revenue to the extent that government budgets are going to collapse. There’s no risk of that,” Mr Sifri said.
He said one way the UAE can widen its diversification efforts is by increasing the attractiveness of the country as an onshore hub for private banking to compete with other more developed hubs such as Switzerland and Singapore.
More needs to be done, however, to tweak regulations which are formulated by both the Central Bank of the UAE and Emirates Securities and Commodities Authority, to make them more efficient.
“In 2009 we were managing just half a billion dollars in assets,” he said.
“Today that number is closer to $4bn and it proves that the UAE can be a successful onshore wealth management hub.”
EIBank’s net profit for 2016 rose 20.5 per cent amid gains in assets under management and revenues from the investment banking division.
Updated: October 2, 2017 09:06 PM