Central Asia is the place for top regional or global picks. Shamil Zhumatov / Reuters
Central Asia is the place for top regional or global picks. Shamil Zhumatov / Reuters

Year of distress ahead for investors



Last year, a period of unrest in which three governments were overthrown in North Africa, was not kind to stock market investors.

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But even though the UAE experienced none of the turmoil that occurred elsewhere, including in the Gulf, and the Emirates even briefly appeared as a shelter from the storm, Dubai's main stock market nevertheless fell to its lowest level since 2004.

Investment banks have withdrawn equity sales and research teams from the UAE as part of tens of thousands of job cuts worldwide, while about half of the Emirates' brokerages closed as trading dwindled.

The dire performance of local markets should be a call to action for the Government if it wishes to retain the UAE's position as the region's financial centre, says Fathi Ben Grira, the chief executive of Mena Corp, an Abu Dhabi brokerage.

"Performances have been disappointing, it's obvious to say," he says. "Now we've reached the level where the local stock market will be seen on the international stage as a penny stock market."

The Dubai Financial Market General Index ended the year down 18.8 per cent at 1,353.39. The Abu Dhabi Securities Exchange General Index fell 12.6 per cent to 2,402.28, its lowest level since 2009.

Underscoring the misery for traders, last month the UAE and Qatar failed again to secure an upgrade to "emerging market" status from the index compiler MSCI.

But turbulence on world markets hammered investments worldwide, with a stand-off over borrowing limits and a ratings downgrade for the US roiling markets during the summer. Meanwhile, the euro zone's debt crisis dragged on into its third year.

The UAE's markets, despite ending the year lower, performed better than many European indexes.

As a new trading year begins, we ask some of the UAE's investors and brokerages where bright spots could break through the gloom.

Eric Swats, the head of asset management at Rasmala Investment Bank

Top picks for this year Our focus from a top-down perspective is on the companies domiciled in those countries where there's clear and demonstrable economic growth.

What investors should avoid We see little of interest in Kuwait and in the Emirates. Egypt still is very much clouded by the political uncertainty and macroeconomic risks. We'd be reluctant to change those macro bets.

What investors should be watching out for this year The Government of Dubai has a lot of refinancing taking place this year. That's really where some of the downside risks lie. As we pass some of those headwinds, we'll see some upward interest or pressure on the equity markets.

What to expect from the euro-zone crisis There will be an indirect impact from some of the European banks not participating in the project finance and syndicated loan markets, which are important for the GCC.

Top regional or global picks Saudi Arabia and Qatar. These remain our top two markets.

Talal Touqan, the head of research at Al Ramz Securities

Top picks for this year Fundamentally, most companies are doing just fine. High-income generating stocks. Dividends are the most foreseeable component of income for next year. Three quarters have already been announced, and most companies that pay dividends will pay dividends again.

What investors should avoid Investment companies and finance companies that are directly related to the stock market. Telecoms and insurance companies are also facing tough competition

What investors should be watching out for this year Geopolitical risks for the whole region. I'm most concerned with what's happening with Iran.

What to expect from the euro-zone crisis The impact is more on sentiment rather than economic growth.

Top regional or global picks I'd keep my eye on Qatar.

Fathi Ben Grira, the chief executive of Mena Corp, an Abu Dhabi brokerage

Top picks for this year I'd look at private-equity funds. It might be right to invest in private companies to anticipate the next cycle of initial public offerings.

What investors should avoid We'll see a slowdown for the Qatar market. They'll have a problem with foreign ownership. The domestic companies are doing well, but they're doing well on local projects.

What investors should be watching out for this year Increases in foreign ownership limits. It'll attract investment from fund managers in Europe. They're not looking to European stocks now.

What to expect from the euro-zone crisis When investors take decisions to invest or not, they look at the London Stock Exchange or the CAC 40. Normally this shouldn't happen at all, but we'll have a problem in refinancing companies on the international markets.

Top regional or global picks Central Asia. Elsewhere, it should be more cherry-picking companies with strong fundamentals within Europe or the US.

Fadi Al Said, the head of investments at ING Investment Management

Top picks for this year We see the same companies we held in 2011. It's all a function of how the real estate and banking sector will do in 2012.

What investors should avoid The market will be still cautious on Egypt. It could be a very strong year or a very negative year. It all depends on the political outcome and how things will move forward after that.

What investors should be watching out for this year A turnaround in profitability for the banking sector and real estate. We're not taking the call that real estate could move higher, but we know that it's stabilised and the downside is limited.

What to expect from the euro-zone crisis The direct impact is cost of funding. It's more relevant to new issuers and debt refinancing. The more stress in the debt market, the harder and more expensive it will be to roll over debts.

Top regional or global picks The preferences will be UAE, Qatar and Saudi Arabia.

Mohieddine Kronfol, the chief investment officer for fixed income, and Joe Kawkabani, the chief investment officer for equities, Franklin Templeton Investments

Top picks for this year With interest rates at very low levels and central banks predisposed to additional quantitative easing, equity markets and risk assets could deliver positive gains.

What investors should avoid Considerable challenges remain ahead largely from confidence issues for both markets and economies [globally]. Policymakers have to engage and listen to different stakeholders and adopt measures that build confidence and promote sensible economic policies.

What investors should be watching out for this year Outside the GCC region, we anticipate that 2012 will be the year of political transitions after the Arab Spring. New parliaments and governments will likely be elected with a mandate to reduce poverty and create employment. This should have a positive impact on their respective economies.

What to expect from the euro-zone crisis The GCC continues positively, with easier access to funding than most areas, and a burgeoning private sector. Therefore, the GCC has seen less of an adverse impact due to the euro crisis.

Top regional or global picks We are constructive on the Mena region as we are anticipating that the region's growth [will] be positive and faster than the developed world. We favour Saudi Arabia and Qatar, given their political stability, their growth profile and the valuation in the markets.

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