Abu Dhabi, UAEThursday 20 February 2020

Emirates NBD expects a ‘modest year’ for investor returns

Bank says high valuations, elevated global debt and persistent risks will weigh on markets

Maurice Gravier, chief investment officer of Emirates NBD, presented the bank's Global Investment Outlook for 2020 on Sunday. Antonie Robertson / The National 
Maurice Gravier, chief investment officer of Emirates NBD, presented the bank's Global Investment Outlook for 2020 on Sunday. Antonie Robertson / The National 

Emirates NBD, Dubai’s biggest lender by assets, said investors should expect “positive, but modest” returns this year after a “spectacular 2019”.

In its Global Investment Outlook 2020 report released on Sunday, the bank said investors should be flexible when allocating funds and favour emerging market equities.

“It’s going to be a modest year and we even wonder if it’s not the last positive year before the cycle really turns and before we get into more trouble,” Maurice Gravier, Emirates NBD’s chief investment officer, told The National.

Potential volatility risks in 2020 include geopolitical tensions and the coronavirus outbreak, which has now infected more than 14,000 people globally and resulted in 304 deaths. High valuations and global debt levels will also be key challenges in the decade ahead, Mr Gravier said.

The bank — which manages Dh683.3 billion in assets as of December — favoured gold and cash as its preferred investments in 2019 and emerging market equities in the long term. It delivered investor returns of 11 per cent, 14 per cent and 18 per cent for its cautious, moderate and aggressive risk profiles. For 2020, however, the bank expects average returns across all asset classes of 5 per cent.

Despite a slowing global economy and escalating US-China trade tensions, global equities gained 28 per cent in developed markets and 18 per cent in emerging markets in 2019, the report said. Gold and global listed real estate companies gained close to 20 per cent.

The performance was mainly due to “central bank support”, Emirates NBD said. The US Federal Reserve cut its benchmark interest rate three times last year and the UAE followed suit. While the Fed held rates steady at its meeting last week, Emirates NBD said it expects one more rate cut in 2020.

However, Mr Gravier pointed out certain economic challenges. High valuations of equities is one concern as “markets are priced for perfection”, he said.

Global debt, which reached a record $250 trillion (Dh918.24tn), is another concern as the level is “so high that at a point it should take its toll on growth”, he said.

Other potential risks to the economy include a global recession — which Mr Gravier said “we don’t expect this year” — as well as the US elections, oil prices and geopolitics.

“It used to be the trade war and Brexit. Now we [have] started the year with the military tension with Iran and coronavirus,” Mr Gravier said.

While it is “still early” to predict the effects of the outbreak, which originated in Wuhan, China, Mr Gravier said “there is no doubt that there is an economic impact and a market impact”.

One of the main concerns is the impact on global supply chains, given China’s position as the world’s largest exporter. Factories across China, which manufacture goods ranging from clothes to iPhones, have been shut as the government strives to arrest the virus's spread.

“The risk is on the supply side — if they keep the factories closed for long. If they reopen [in two to three weeks], that’s fine,” Mr Gravier said. “If they don’t, it becomes a global issue.”

Brent prices are expected to record an average of $57 this year, down 11 per cent year-on-year from 2019, the report predicts.

Emirates NBD is continuing its strategy of favouring emerging market equities. Emerging markets contributed to more than two-thirds of global growth and emerging market debt has delivered consistent returns over the last decade, the report said.

In comparison to developed markets, “there is absolutely no doubt they grow faster and they are cheaper in valuations”, Mr Gravier said.

Updated: February 2, 2020 07:07 PM

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