An expected slowdown in the world economy this year means investors around the globe will find it harder to generate returns and will need to revisit their investment strategies amid changing inflation and interest rate dynamics, a top asset manager has said.
Listed on the New York Stock Exchange, UK-based Janus Henderson Investors manages more than $308 billion in assets globally.
Its first office in the Middle East was set up in Dubai, in 2012. Since then, it has been serving clients in the region, including sovereign wealth funds, pension funds, family offices and ultra-high-net-worth individuals.
The asset management firm also provides tailored investment solutions for some pension funds and SWFs in the region.
There is still a lot of opportunity in the fixed income and equity markets, whether be it in the US or globally, but “that doesn't mean that everything will go up and everything will be easy to make money off”, Ali Dibadj, the firm's global chief executive, told The National in an interview.
As interest rates are about to subside, as hinted by the US Federal Reserve in its December 13 meeting, it means the end of the easy returns for everyone, he warned.
Mr Dibadj advised investors to be “very, very diligent”, adding that they could not “just pick one company because it’s making money, because there might be mini bubbles along the way”.
“Even if the interest rates come down, I will be very surprised if they go down as low as they have been historically, at least for the past 10 years or so,” he said.
Investors need to pick and choose an asset carefully across different markets, regardless of the “enormous” market opportunities, Mr Dibadj said, explaining the shift in the investment environment.
The expected fall in interest rates will reduce the attractiveness of holding cash and could lead to reallocations to the return-generating potential of carefully selected risk assets, he said.
On December 13, Fed chairman Jerome Powell said that the central bank expected to begin bringing down interest rates from this year.
“Inflation has eased from its highs, and this has come without a significant increase in unemployment. That’s very good news. But inflation is still too high; ongoing progress in bringing it down is not assured, and the path forward is uncertain,” Mr Powell said at the time.
The Fed ended its final policy meeting of the year by leaving interest rates unchanged at 5.4 per cent – their highest level in 22 years.
By aggressively raising rates, the central bank has sought to rein in the surge in US inflation, which had climbed to 9.1 per cent in 2022.
Markets cheered on December 13 and the rally continued until the end of year, with the Wall Street closing 2023 having posted its best annual rise since 2019.
The S&P 500 index ended 2023 more than 24 per cent up while the Dow Jones Industrial Average rose more than 13 per cent and the Nasdaq soared 43 per cent, its highest annual gain since 2020, on rate cut hopes.
The MSCI World Index, which tracks large and mid-cap companies across 23 developed markets, soared 22 per cent in 2023.
The MSCI Emerging Markets Index, which captures large and mid-cap stocks across 24 emerging markets, also ended higher by about 7 per cent last year while MSCI GCC index closed up 3.7 per cent.
On the fixed-income side, the market rallied last year on rate cut expectations. The S&P US Dollar Global High Yield Corporate Bond Index returned 12.1 per cent to bond investors while S&P Investment Grade Corporate Bond Index had returns of 8.2 per cent.
Emerging investment trends in GCC
In December, Janus Henderson Investors bolstered its business in the Middle East with the appointment of Marwan Al Saleh as senior adviser.
Mr Al Saleh was previously at the Kuwait Investment Authority, where he managed its fixed-income asset allocation from 2016 to 2021.
“We are well into the double digits of billions of dollars of assets under management in the region from some of the most sophisticated investors,” said Mr Dibadj.
“From a global perspective, however, the assets under management [AUM] of the GCC region are still relatively small, comprising around 5 per cent of our global AUM.”
Janus Henderson Investors is bullish about the region's “tremendous” growth potential.
“We've been growing quite well over the past 12 to 18 months in the region, in terms of the number of clients, the number of funds on offer, as well as in terms of assets under management,” Mr Dibadj said.
The AUM of GCC sovereign wealth funds have grown 70 per cent since 2018 to $3.6 trillion, driven by an increase in oil and gas prices, and an active investment approach, credit rating agency DBRS Morningstar said in a report last September.
Last year, the AUM of sovereign wealth funds in the GCC reached a historical peak of $4.1 trillion while investment activity, although lower than it was in 2022, amounted to $82.3 billion, industry specialist Global SWF said in its annual report released on January 1.
In terms of the investment preference of regional institutional investors such as sovereign wealth funds, Mr Dibadj said he was seeing distinctive trends.
“As interest rates are higher, a lot of our clients in the GCC and, broadly, the Middle East are looking for public equities, which offer a really interesting opportunity without the liquidity constraints to get private equity type of returns at this point in time,” he said.
The asset management firm also says private debt market, as an asset class, is gradually picking up among region's institutional investors.
“Historically, this asset class has been occupying a significant place in the investment strategies of the sovereign wealth funds and family offices of the region,” Mr Dibadj said.
“However, a lot of that private debt has been investing outside the region, leaving little to invest within. That's the area we expect will continue to grow and hold a lot of opportunity.”
The GCC region continues to be a great place to do business, despite geopolitical volatility in the region, Mr Dibadj said.
“Every part of the world has a different journey, a different trajectory, a different path. For the Middle East specifically, our view is that the region broadly continues to stabilise,” he said.
“Take the UAE, for instance. It's a very young country but the progress that has happened in such a short period of time has been excellent.
“We are quite bullish about the UAE and the GCC and we continue to see progress and a diversifying investment mindset among policymakers, and a strong interest around energy transition.”
