Trader profile: Untapped opportunities in the region
What is the asset class and geography you are focused on?
I analyse commodities, currencies and equities across the Middle East and Africa, which is exciting since regional markets provide a pool of largely untapped investment opportunities. Being on the right side of a trending market in Saudi Arabian equities or in the Nigerian naira currency can be a lot more rewarding than widely followed trading instruments such as, say, the euro or yen, which are both crowded trades.
What is the outlook for the month ahead?
The US dollar is getting stronger, which will have a deflationary effect globally. This is a negative sign for commodities, which tend to move in the opposite direction to the US dollar, so we can expect lower prices for goods in the coming months. The energy sector forms a big part of the commodities market and includes Brent crude, light crude oil, natural gas and heating oil. These are all likely to remain under pressure, followed by a possible weakness in the price of industrial metals. Such weaknesses will continue to negatively affect equities in energy-exporting countries, and provide a negative outlook for commodities. However, selective sectors and countries in our investment landscape will benefit from the low energy prices. For example, energy-importing countries with current account deficits, such as Egypt, Turkey, Morocco and Tunisia, should benefit.
What are the main risks, either upside or downside, to the outlook?
On the positive side for global equities, risk assets have been known to perform well in the last month of the year, so we may see a cyclical year-end rally take place. However, emerging markets and the commodities market will need more than one month of strength to reverse a three-year-long downtrend. There is a risk that energy prices will continue to deteriorate and that there will be a major breakdown by copper below a key resistance level. Historically, copper has been a leading indicator of economic outlook.
What is the best investment at the moment?
I see strength in the US dollar and this is likely to be a long-term theme. More and more central banks around the globe are aiming for weaker local currencies. The euro is weakening against the US dollar, closely followed by the yen and many other emerging-market currencies.
What was the best investment you were ever involved in?
I was involved in a strategic investment in gold for Invest AD and both the entry and exit levels worked out well for us. As this was a closed trade, I can give a bit more detail on the trade idea, as well as its execution and the timing. As a theme, this was an inflation hedge for us. Entry was based on a technical breakout from a long-term consolidation range, slightly above US$850 levels. Our investment horizon was two to five years, so I implemented an approach and subsequent monitoring that followed a long-term trend. Our exit was based on a fundamental change in the demand and supply dynamics in commodities. On a micro level, the exit was timed after a major technical breakdown between $1,500 and $1,400.
What was the worst?
My worst trade ideas have mainly been opportunity costs. I focus on price breakouts in my analysis, and breakouts are often followed by sharp trends. After a strong breakout I look for follow-through, but sometimes the price loses its momentum and enters into another consolidation phase. Charts constantly evolve, but trades that reach their predefined price targets are the best. The worst ones are those that do not get stopped out or do not meet their price target. I never let a trade idea incur major losses. I do accept failed breakouts and honour stop-losses. In that sense, a trade idea that reaches its target or a trade idea that fails and gets stopped out, are both good. Losses are part of the game. The worst trades are those that move sideways for a prolonged period of time.
Published: December 28, 2014 04:00 AM