Trader profile: Cautious optimism in GCC investor market

An investment manager in Abu Dhabi tells of the highs and lows of his job in the markets.

Rajat Gupta is an investment manager at Reem Investments in Abu Dhabi. Delores Johnson / The National

Rajat Gupta

Position: Investment manager at Reem Investments

Based: Abu Dhabi

Experience: 9 years

What is the asset class and geography you are focused on?

I look after a multi-asset proprietary portfolio comprising direct equities, fixed income and private equity funds. These assets are spread globally with the majority of the allocation going toward the GCC region.

What is the outlook for the month ahead?

First quarter earnings, oil price movements and the FOMC [Federal Open Market Committee] meeting will be the key events in April. The month can be very volatile if we see a couple of big earnings misses on the back of tepid business last quarter. Investor sentiment across GCC markets, however, remains cautiously optimistic, helped by the recent recovery in oil prices, the Russia/Ukraine ceasefire, and the postponement of the Greece/EU agreement. Over the longer term, the strong fundamentals of GCC companies and economies are set to deliver encouraging returns for investors, as governments are better positioned to weather the storm of oil price decline. Moreover, there is a strong intent to continue the capital spending, coupled with some major events to look ahead such as the Dubai Expo 2020, Qatar Fifa 2022 and the Saudi market opening, which will continue to garner international investments into these markets.

What are the main risks, either upside or downside, to the outlook?

Main risks to the downside are first quarter earnings miss, Brent retracing back to US$45 levels, and surprise April hike by the Fed. Current sell-off locally has paved the way for attractive entry points for investors; just a little push from the upcoming earnings seasons would result in a sharp spike in the markets. There may be some hiccups in the short term, but over the longer term we are bullish on the region.

What is the best investment at the moment?

Locally the only listed carrier, Air Arabia, looks very interesting at the current levels of Dh1.4. The stock is currently trading at less than 10x P/E for financial year 2015 with 6 per cent dividend yield, which is sustainable at the current cash flow levels. With fuel cost comprising more than 50 per cent of Air Arabia’s operating cost, it benefits from being at the right side of the oil trade. Passenger growth remains at healthy levels of about 10 per cent, while clocking load factor of 80 per cent plus. Moreover, softening in aircraft leasing rates is also expected to add flair to the EPS. The airline has recently added China to its list of destinations, and we are yet to see how their new regional hub, Amman, helps in establishing a strong foothold in the Mena region. There is whole lot of positive news doing the rounds; it also acts as a hedge against another major fall in crude oil to your portfolio.

What was the best investment you were ever involved in?

One of the best investments made last year was into Emaar Properties. The stock delivered a return of close to 65 per cent (including dividends) during the first nine to 10 months of the year on the back of a sharp rebound in real estate prices, increase in retail/hospitality revenues, and also on the back of the Emaar Malls IPO and expected hospitality IPO. Overall, shallow corrections in the market during June and September months helped us in outperforming the market by as much as 20 per cent on our trading portfolio last year.

What was the worst?

December 2014 was one of the most volatile months globally, the MSCI world index was down close to 5 per cent during the first half of the month, while the regional markets got spooked by aggressive deleveraging and margin calls as the oil price fall accelerated. Local stocks were down anywhere between 10 and 20 per cent for the month. Moreover, CDS spreads also widened; more so for Opec countries, while markets were still engulfed with the Russia/Ukraine stand off and the Greece crisis.

* The National staff