What is the asset class and geography you are focused on?
Middle East and North Africa (Mena) listed equities. We also offer a comprehensive asset allocation model that allows for a regional portfolio to have exposure across multiple asset classes in industries that provide the best risk-to-reward ratio over varying time horizons.
What is the outlook for the month ahead?
Regional markets have had a strong start to the year despite international markets, especially emerging markets, selling off sharply in January. February will be an interesting test – can regional markets keep avoiding the global trend and trade uncorrelated or will they succumb to the same selling pressure? Alternatively, will the international markets recover from the selling pressure, allowing regional markets to continue their rally? So far the regional markets are shrugging off any concerns. Alternatively, will the international markets recover from the selling pressure allowing regional markets to continue their rally?
This is playing out right now but it will be interesting if it can be sustained for the rest of the month and it’s not a dead cat bounce. We also have to keep in mind that given how strong last year was, we could see a fair amount of profit taking in the coming weeks if the sentiment turns decidedly negative. Fundamentally, the macro picture has not changed, so if there is sustained selling that could present an opportunity to re-enter at favorable prices, especially for those who missed the last price appreciation. Given the different headwinds being created on a global level, volatility will start to creep back into regional markets, testing the buyers resolve. However, the MSCI inclusion has most likely installed a floor to any downside, especially in the UAE and Qatar.
What are the main risks to the outlook?
The emerging-market contagion could spread, halting the US rally and the European recovery. The Chinese shadow banking defaults could become more severe impacting Chinese growth, which could then become the single most important risk to the global economy. On the other hand, the central banks would continue to maintain loose monetary policies and with the US Fed continuing its asset purchasing programme, albeit at a reduced rate, there should be enough liquidity still available to appreciate asset prices wherever there is fundamental valuation opportunity. The global recovery is still fragile so policy makers would not change course drastically and they would continue to use the same tools that have allowed them to come out of the last recession. It could be the emerging market sell-off snowballing or it could be something entirely different..
What is the best investment at the moment?
At the risk of sounding biased, we do believe Mena capital markets are one of the best trades out there, whichever asset class you want to look at – be it listed equity, private equity or even real estate. The population demographics, disposable income levels, rate of consumer spending and government surpluses are some of the best in the world.
What was the best investment you were ever involved in?
It’s still ongoing. We bought near the bottom in 2009-2010. We picked up very attractive prices in Dubai, Abu Dhabi, Saudi Arabia and Egypt. Some of the strategies we follow are contrarian in nature, which work really well in panicked markets and in conditions of distressed selling.
What was the worst?
Early in my career, I was working on Wall Street and trading US equities on both NYSE and Nasdaq. I was overly long [on] the US markets, including some airlines, when September 11 happened. Needless to say, I took a big hit. I recovered well, but it was an important lesson in the harshness of market activity if you are not hedged properly and diversified, as well as a timely lesson in respecting business cycles and understanding how your entry and exit points relate to where you stand in the bigger picture of economic activity.
ssahoo@thenational.ae
