By Elizabeth Broomhall
British lender says huge amount of global liquidity is pushing up equity sales despite regional unrest
Equity markets and commodities markets will provide the best opportunities for Middle East investors this year, according to the Standard Chartered bank.
A huge amount of global liquidity has pushed up equity sales in spite of the recent Middle East uprisings, Japan disaster and worsening European sovereign debt crisis, the bank’s group investment strategist Steve Brice said.
“Normally what we’d see in an environment like that is huge risk aversion, people taking money out of equity markets and putting them into much safer vehicles, but actually equity markets were the best performing asset class in the first quarter [of this year],” said Brice at a roundtable event in Dubai.
“The reason is that we still have a huge amount of global liquidity around the financial system, and that’s looking for a home.”
Accordingly, and despite the realisation of risks, equity markets were up four per cent in the first quarter of 2011 and 16 per cent annually, compared with bond markets which increased just one percent and cash markets which didn’t move.
Looking forward, Standard Chartered says equity markets will continue to perform well, with returns of between eight and 12 percent anticipated over the next 12 months.
“It’s not the 20 or 30 percent returns people have been used to over the last 18 months but they are still very healthy returns, especially in the context of what we’re likely to see from other asset classes,” said Brice.
“For bonds we’re only expecting about two per cent returns, and cash: virtually zero. Equity is going to knock the socks off other traditional asset classes.”
The commodities markets will also generate good profits, according to the bank, who says investment – which has already surpassed its peak levels of 2008 – will continue to increase further in the next five years.
The price of gold in particular, is predicted to reach $2,100 by 2014, providing an annual return of 13 per cent over the next three years and a “very healthy” return for a non-income-generating asset.
This will be largely impacted by the rapid growth of emerging markets and their demand for commodities, and particularly China and India, where GDPs are expected to increase significantly.
“Obviously commodities are on everybody’s minds, following a significant shake out last week,” said Brice, “but they seem to have been stabilising since then.
“The point we would like to make is that there is a structural shift towards greater investment in commodities [as opposed to a short-lived coincidence], and we think we’re going to see significant commodity rallies over the long term.”
As for the global economy, Standard Chartered predicts an increase in value from $62 trillion in 2010 to $308 trillion in 2030 - mostly driven by emerging markets.