The decade ahead looks set to be more challenging for investors than the previous one, highlighting the need for discipline in portfolio construction, risk allocation, as well as selectivity of securities and products, said an industry expert.

While 2019 started with markets overshooting fundamentals there are late cycle forces at play, slowing economic and earnings growth, but recession is not forecasted in the US nor a hard-landing in China, added Maurice Gravier, chief investment officer, Emirates NBD (ENBD), a leading banking group in the region, at the media briefing during the release of the global investment outlook for 2019 themed “Preparing for the Next Decade”.

“Accordingly, Emirates NBD Wealth Management has reinforced its investment process around three key pillars to safely navigate what should be a turbulent decade for investors: a robust strategic portfolio construction, a framework to dynamically allocate capital when opportunities arise, and more than ever, selecting the right securities after years of passive investment hegemony,” said Gravier.

On last year, it was highlighted how 2018 marked the transition to a new regime of lower expected returns and higher risks, with less economic growth and richer valuations.

Gravier estimated that volatility will continue to be elevated, with less liquidity and ever rising political uncertainty. Record levels of global debt are a common denominator, capping growth and heightening investment risk. He further claimed that there is also good news - secular positive trends are still at play, valuation opportunities have appeared and cash is back as a yielding asset.

He concluded by reiterating that “definitely, the future is not what it used to be, but history has proven that turbulent markets generate the best investment opportunities”.

Highlights of the Emirates NBD2019 Investment Outlook:

Asset Allocation and Portfolio Construction

•    Gradually taking profits on developed market (DM) Government bonds to reinforce cash and equity
•    Emerging Market (EM) Debt and global equities our preferred sources of return, gold and cash the best defensive assets
•    We will tactically adjust exposure based on valuation discipline

Equity Convictions

•    DM: neutral US, slightly underweight Europe vs slightly overweight Japan
•    EM: we favour Asia, with no specific country bias, positive on KSA with MSCI EM inclusion a catalyst
•    Sectors:  technology our preferred growth sector, we play materials and GCC banks for dividends, and favour Healthcare as our preferred defensive sector.

Fixed-Income Convictions

•    Favour Corporate Credit and EM debt over DM Government bonds
•    Overweight the US within DM Government bonds, and favour Investment Grade over High Yield in credit
•    GCC bonds offer value across select Sovereigns and Credit (Utilities, Energy and Financials including hybrids)

Oil Outlook

•    Oil prices to fluctuate against weakening outlook for global economy
•    We expect Brent futures to average $65 per barrel in 2019 with significant volatility

Real Estate

•    Late cycle concerns: low property yields, slower growth and rising rates
•    Demand still robust for prime assets over the long-term, 2019 focus on defensive sectors

The annual Emirates NBD CIO Outlook is an advisory blueprint covering investment opportunities and key global economic indicators and in-depth financial market insights, based on which Emirates NBD’s team of advisors, traders and analysts make recommendations on financial transactions and investments to the bank’s qualified clients. – TradeArabia News Service