Markets have been shaky after the disaster that swept through Japan and the continued unrest in the Mena region. What does that mean for your portfolio? David Pinkerton, the chief investment officer of Falcon Private Bank, which has an office in Dubai and a new one slated for Abu Dhabi, shares his thoughts.
What's the market sentiment right now?
We've been on a risk "off mode" for the last three to four weeks. But with that said, all of the fiscal and monetary stimulus on the way around the world will reward investors.
Which asset classes will benefit most from the stimulus?
Equities and commodities, in general. Bonds in the emerging markets, where there's a high interest rate paid by those issuers.
Many stock prices have fallen in Mena countries with continued unrest, and even some countries such as the UAE that are just in the neighbourhood. Do you see good growth opportunities in equities right now?
A lot of these countries still have a lot of political risk. Over the next couple of years, we think there'll be equity opportunities in the region. But there seems to be a lot of diverging economic and political pressures right now, and we'd rather take the play on the debt side as opposed to the equity side.
What is it about the debt side that seems promising?
Right now we think there's most value in some of the debt instruments issued in the region, where governments and related entities are paying high interest rates or coupons for their credit because of general concern over the region. With that said, we think the governments here are also supporting, and committed to, diversifying their economies and building up their infrastructure.
How?
There's the 2030 plan in Abu Dhabi. There's a whole series of companies that are strategic and imperative to meeting that plan. And because of what people are observing in Egypt, there's also a commitment there to move forward to building out the infrastructure. It's even stronger than before the unrest.
Some experts, including the billionaire investor Warren Buffett, say deflated stock prices in Japan present a good buying opportunity. What's your take there?
We have a market weight to Japan at the moment, and I have had a long and frequent set of discussions with my team on how we should react to these events. The issue with investing in Japan for people who aren't based there and have local currency is that equity prices are going up but currency is going down because they're issuing more of it. In Japan, the yen is weak.
So what's the takeaway on Japanese stocks?
You may make it with equities but you could lose it on currency. Be careful of investing in markets other than your own. You have two risk factors: the equity and the currency.
How will the ongoing nuclear threat affect the energy markets?
This event in Japan is going to create a social backlash against the use of nuclear as an alternative fuel, and people will go back to the use of oil. This will keep demand for oil - and prices for oil - strong.
Is there an opportunity then for investors interested in oil?
It depends on timing and the nature of a person's portfolio, but there's a trend for oil prices to continue to go up. It will be volatile, though.
