Magdi Shannon, the head of trading at Shuaa Capital, talks about the outlook for equities in the region and risks that may affect trading direction and sentiment.
What is the asset class and geography you are focused on?
In equities. The majority of Shuaa Capital’s trading activity is directed towards the UAE, Saudi Arabia and Qatar. In fixed income, we provide access to regional and international issues on the primary and secondary markets. We provide firm pricing and liquidity on GCC investment grade-rated bonds and sukuk. During the first half of this year, more than 65 per cent of fixed income traded value was in international markets outside of the Arabian Gulf region. Most of our trading activity in derivatives also takes place outside of the Arab world.
What is the outlook for the month ahead?
Bullish. With the summer holidays behind us, we have a lot to look forward to over the coming period. In the UAE, Emaar Properties’ malls unit IPO will act as a positive catalyst for pushing the market higher. In KSA, the market will continue to rally after the Capital Markets Authority (CMA) released the long-awaited draft rules for qualified financial institutions investment (QFII) in listed shares, which will permit foreign investors for the first time. The Tadawul All-Share Index is already up 13.5 per cent since the kingdom’s cabinet announced that overseas financial institutions will be able to trade equities directly on the exchange and gave the CMA authority to determine the timing for opening to foreign investors. Meanwhile in Qatar, the recent increase in MSCI EM Index weighting at the quarterly review supports positive market momentum.
What are the main risks, either upside or downside, to the outlook?
The main market risk is geopolitical. An escalation of western military action in Iraq and Syria represents the biggest downside risk to the region. Signs of improvement in other emerging market economies represent an upside risk to the regional market outlook. In the UAE, we continue to see any correction in the real estate market and delays in debt restructuring as the biggest downside risks. However, it appears the market has stabilised on these fronts. On the other hand, potential upside could arise from quick implementation of the companies law, which will help fuel IPO activity and efficient debt restructuring. As for Saudi Arabia, downside risks comprise a slowdown in oil demand and labour reforms such as Saudisation laws. On the upside, quick and efficient implementation of investment programmes and the opening up of the Saudi market to foreign institutions may have positive benefits. Qatar’s downside risks include its current poor relationship with other GCC countries and a slowdown in infrastructure-related projects. Upside benefits include the quick and efficient implementation of a massive infrastructure drive planned in its US$62 billion budget.
What is the best investment at the moment?
According to our equity research analysts in the UAE, Emaar is the top pick. The company is likely to benefit from a number of near to medium-term catalysts, including the malls unit IPO. It will unlock hidden value for shareholders, as it will remove the discount currently applied to cash flows associated with the malls business.
What was the best investment you were ever involved in?
There have been a number of good opportunities in the last several years, with my favourite being the Citibank trade I did on the New York Stock Exchange. I bought right after the financial crisis hit, around $1 a share and sold at $4 a year later.
What was the worst?
I bought shares in Fannie Mae and Freddie Mac believing they would follow the same trajectory as Citibank. Unfortunately that was not the case, but thankfully I stuck to the trading strategy that I set myself before making any investment, and stopped the loss at 15 per cent downside.
abouyamourn@thenational.ae
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