Investors holding diversified asset allocations in their portfolios can look forward to "good returns" over the next decade as markets shake off last year's economic headwinds and return to positive territory, according to Emirates NBD's annual global investment outlook for 2023.
Emerging market stocks could offer investors positive returns over the next 10 years, while global stocks could also boost yields, Anita Gupta, head of equity strategy at Emirates NBD, Dubai's biggest lender by assets, said on Monday.
"Global equities returned about 6.4 per cent in January," Ms Gupta added.
"Returns from emerging markets such as India, China and the UAE will be about 6.8 per cent in the next decade."
“UAE companies pay high dividends and the GCC has seen successful capital issuance. The broadening of the market will bring in international investor participation."
The UAE and the wider GCC region have witnessed a string of IPOs amid strong investor demand as economies rebound at a quicker pace from the coronavirus-induced slowdown and liquidity has been shored up by high oil prices.
However, economic uncertainty worldwide — compounded by the Russia-Ukraine war, the supply chain crunch, rising inflation and higher interest rates — increased volatility in global financial markets last year, causing them to fall into bear territory and end the 13-year bull run.
Global stocks recorded a $18 trillion rout last year, with the Nasdaq 100 index falling 33 per cent and the S&P 500 losing 19.4 per cent.
Meanwhile, investors with a short-term horizon could consider parking their money in fixed deposits, while those with a long-term view could look at fixed-income assets like bonds, said Satyajit Singh, head of fixed-income strategy at Emirates NBD.
“Cash is king in the short term,” Mr Singh added.
“We are approaching the end of the rate hike cycle, which was the bane for fixed-income investors. 2022’s headwinds on the most defensive segments have vanished.”
The lender said it is overweight on government Treasuries and investment-grade debt and underweight on high-yield bonds and emerging-market debt.
“Growth slowing in developed markets and tightening of monetary conditions are not good for emerging market debt,” Mr Singh said.
Making a case for GCC debt, he said most issuers are sovereign entities, with the region offering good income and no defaults.
Robust oil prices will also support the balance sheets of GCC issuers, Mr Singh added.
Brent, the benchmark for two thirds of the world’s oil, should average around $105 per barrel this year, Emirates NBD estimated.
On Monday, oil prices were steady as the prospect of a rebound in fuel demand in China offset concerns about a recession, with Brent trading 0.67 per cent higher at $80.61 a barrel as of 4.37pm UAE time.
“We are confident that inflation will come down in 2023. But, shrinking globalisation and the ageing population will not help in the medium term,” said Maurice Gravier, chief investment officer at Emirates NBD.
“Two per cent inflation won’t be the norm any more, it will be more in the range of 3 per cent to 4 per cent.”
Authorities have less room to manoeuvre now because of high levels of debt and geopolitical tensions and the coming decade will be marked by constant adjustment, Mr Gravier added.
“The world is transitioning from an era of low inflation, abundant liquidity and globalisation to a more complex and unstable state. There are short-term unknowns, especially the relative trajectories of inflation and growth and the reaction function of central banks in 2023.”
Investor focus will switch at some point from inflation to recession. The good news, however, is that market participants are well aware of this dual risk, according to Mr Gravier.
The lender’s projection for the year-end gold price is $1,950, but real rates and geopolitical factors will weigh on the precious metal.