A new investment landscape is emerging from the disruptions of the last three years, where uncertainty has become more structural, and unpredictability has become the norm, says an Emirates NBD investment outlook for 2023.

 

Emirates NBD, a leading banking group in the MENAT (Middle East, North Africa and Turkey) region, has released its global investment outlook for 2023. Themed, “Adapting to unpredictability” the outlook was revealed by Maurice Gravier, Chief Investment Officer at Emirates NBD Group. 

 

Gravier commented: “The world is transitioning from an era of low inflation, abundant liquidity and happy globalisation to a more complex and unstable state. There are short-term unknowns, especially the relative trajectories of inflation and growth and the reaction function of central banks in 2023. There are also longer-term implications. We were used to cyclical crises and quick fixes from well aligned authorities. We now enter an era of slow-moving shocks with no easy response and less global coordination.”

 

He added: “When unpredictability rules, portfolios have to adapt, and this is where the good news starts. The broad turmoil of 2022 has improved long-term expected returns, especially from income generating assets, and bonds have reconstituted their diversifying power against stocks. We have reshuffled our strategic asset allocations for stronger, better long-term portfolios.”

 

On a more tactical horizon, market participants will focus on one single magic moment: central banks’ pivot from tightening to a pause, opening for more accommodation ahead. This could happen under the happy circumstances of inflation abating before activity collapses. But this could also happen because of a massive economic and financial turmoil. Or not happen at all. Investors’ focus will certainly switch at some point from inflation to recession, says the report. 

 

“The good news, however, is that market participants are well aware of this dual risk, and are overall not too optimistic. We would also reiterate that the West is not the world. China should rebound from a terrible 2022 and India has just replaced the UK among the world’s top five largest economies,” it says.

 

“We start the year by transitioning portfolios closer to our new long-term allocations, with a focus on income generating assets. Money markets and bonds have not been as attractive in decades: there is no need to take outsized risks to get decent yields. In addition, income is extremely relevant in times of uncertainty: the cost of opportunity of risk-free assets is lower, while regular cash-flows from coupons and dividends smoothen portfolio returns. Bottom-line, we look for income in developed markets and seek capital appreciation in emerging markets where equity valuations are outright attractive.” 

 

“Beyond our long-term strategies, which are our first line of defence for an unpredictable world, we are also prepared to be nimbler than ever. Uncertainty generates volatility, which creates opportunities for a fundamental investor with the ability to identify and seize them quickly. Our research and investment team will continuously monitor both top-down factors and bottom-up events to constantly adapt your portfolios to an ever-changing world,” Gravier added. 

 

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, strategists and analysts make recommendations on financial transactions and investments to the bank’s qualified clients, the report added. – TradeArabia News Service