Usman Ahmed, the head of fixed income at Emirates NBD Asset Management, says GCC equities provide the most attractive opportunities over the medium term.
GCC equities tipped as attractive opportunity over the medium term
What is the asset class and geography you are focused on?
The Middle East and North Africa (Mena) fixed income team at Emirates NBD Asset Management runs fixed income and money market mandates both on the conventional and Sharia-compliant sides. We run three fixed income mutual funds – the Emirates Mena Fixed Income, Global Sukuk and Islamic Money Market Fund as well as a number of tailor made discretionary mandates on behalf of clients. Our focus is on issuers based in the global emerging markets and we have a particularly strong track record in the Middle East and North Africa.
What is the outlook for the month ahead?
Over the last six months, the fixed income asset class has been volatile. However, some major positive developments turned the tide for the fixed income markets. Firstly, the odds of a near-term United States military intervention in Syria declined following intense diplomatic efforts by the US and Russia. And contrary to consensus expectations, the US Federal Open Market Committee (FOMC) chose to maintain the current pace of US$85 billion per month purchases of treasury and mortgage-backed securities.
Meanwhile, global macro data remained mixed. While economic data out of the euro zone and China beat estimates, key indicators (PMI, durable goods-ex-transportation, and pending home sales) out of the United States disappointed and, in some cases, saw negative revisions to previous months’ prints. The FOMC’s decision, weak economic data points and the US government shutdown contributed towards the downward pressure on US benchmark rates.
On the regional front, fundamental news remained supportive for spreads. Both, Jafza and MAF Holding reported strong operating performance in the first half of the year and stable credit metrics. The primary market picked up significant pace globally although the only new issue to print in this region was Sabic’s $1bn five-year bond that priced at 2.625 per cent and traded flat in the secondary market. While new issues out of the region were predictably light in September, we have already begun to see an uptick in the corporate and sovereign new issue pipeline.
Going into the end of the year, uncertainty surrounding US monetary policy may put some pressure on risky assets and keep interest rates volatile. Rhetoric from Federal Reserve officials suggests there is still no consensus on the prerequisites for tapering or on the timeline for such action.
What are the main risks to the outlook?
An extremely aggressive tapering of the quantitative easing programme poses the biggest downside threat to the fixed income markets as this could lead to rate rises and spread widening. In terms of upside, if the US economy were to slow down further without going into recession and the Fed remained on hold for the foreseeable future, rates could potentially fall and spreads tighten. The recent decision not to taper has raised concerns that this outcome is more plausible than previously anticipated.
What is the best investment at the moment?
Our house view is that GCC equities provide the most attractive opportunities over the medium term – with regional tensions in Syria having eased, the rally seen this year has continued. This asset class remains an attractive one, particularly as we are in the third-quarter earnings season and markets will shift their sights back on fundamental drivers rather than short-term technical factors. We don’t expect any negative surprises and will likely see further confirmation that the recovery in the UAE economy and the growth drivers for Qatar and Saudi Arabia are firmly on track.
What was the best investment you were involved in?
Launching a Mena fixed income strategy just as the fixed income market in the region was evolving and watching its subsequent growth and development.
What was the worst?
When I was trading fixed income securities in the US, WorldCom, the American long distance phone company, filed for Chapter 11 bankruptcy, which at the time was the largest ever such company to do so. Living through the aftermath of this was the worst and most challenging experience of my career to date.
* Sananda Sahoo