By Khaled Sifri
Be selective about your asset allocation, diversify and don’t be lured into speculation.
The global economic and political turbulence this year has been cause for much reflection and
analysis. It has been a year when investors have become increasingly cautious, with a tendency towards sitting on the side lines, observing the landscape, waiting for a sign of recovery whilst taking an opportunistic approach to allocating capital.
Going in to 2016, we can expect more uncertainty and caution as the market waits for the outcome of certain key events.
The first and foremost being the recent interest rate increase in the US. While we shouldn’t expect a radical shift in policy (one or two small increases over the course of 2016 is likely) it will no doubt play on investors’ minds. For the region, now that the rate increase has occurred, investors should look towards banks and insurers, which will benefit from improving interest spreads. There will, of course, be some volatility around the time of the rate increase. However, this should settle and, coming out of that turbulence, US dollar denominated investments are favoured. Importantly, once the Fed has made its announcement, it will clear the air and many investors that have been watching and waiting will quickly redeploy into the market, boosting liquidity and volumes. Meanwhile, the price of oil will continue to have a significant impact on global markets in 2016. While the general consensus is that prices will stabilise in mid-2016, with a slow increase into 2017, the cloud of uncertainty surrounding it will mean investors will continue to diversify across regional and global markets, looking for sound investments with strong fundamentals.
Whilst Europe has experienced a difficult end to the year, we are positive on the region. A weaker price of oil will act as a stimulus and increased consumer spending would be expected to boost the overall economy, creating opportunities for investors. Meanwhile, the quantitative easing programme is expected to be extended when it expires in September 2016, demonstrating the European Central Bank’s support for the economy. Now that the uncertainty surrounding the troubled economies of Greece, Spain and Portugal is behind us, investors can expect to find value, including in sovereign debt.
Last, but certainly not least, are emerging markets. Whilst emerging markets have generally had a difficult 2015, there are pockets of opportunities for investors to consider. India looks to be on the right track and the extent of the upside potential will become clearer as we see the impact of government reforms by mid-2016. China is another market with attractive valuations. The slowdown has been difficult for China but there is strong support from the Chinese central bank and the outlook is positive, particularly given that the currency is expected to become a reserve currency in 2016, which will have a positive outcome on trade.
Overall, we have a clear message for investors going into 2016; be selective about your asset allocation, diversify and don’t be lured into speculation. We strongly advocate active management of investment portfolios and cannot stress enough the importance of diversification. There is real value to tap into out there, both regionally and globally, but it is critical to be calculated and to do your due diligence – particularly when there is so much uncertainty and with so many variables at play.
Khaled Sifri, CEO of Emirates Investment Bank.