Increased budget outlay in larger economies, such as Saudi Arabia, and a stable oil price will add to the momentum of economic activity in Middle East region, said Derayah Financial in its quarterly report.

Derayah Financial is an independent financial company that offers investment alternatives to investors.

The oil prices are likely to move upwards due to the depreciation in dollar, which will in turn lead to increasing cash flows to the Middle East region, the company said in its quarterly 'Derayah’s Direction' for year-end 2009.

This issue of 'Derayah’s Direction' sheds light on the performance of investment markets in the fourth quarter of 2009, and the suitable allocations of assets for different classes of investors, said a top official.

The report said the GCC markets were currently trading above their long-term average P/E (Price to Earnings) multiples which 'is a possible limit to the market potential for upside.'

'The Current P/E for Tadawul Index (TASI) is also above long-term averages. Therefore, we maintain a neutral stance regarding GCC markets,' said Mohamed El-Kewaiz, Derayah managing director.

The report also includes Derayah's recommendations regarding the tactical allocation of assets.

'Tactical allocation of assets recommends that investors modify their long-term asset allocation to take advantage of the opportunities that arise from temporary dislocations in various markets to generate higher returns,' said El-Kewaiz.

He expressed hope that the report 'will contribute to the investment community by offering a continued flow of detailed and specialized information.'

Derayah, El-Kewaiz said, had an advanced framework for portfolio structuring and tactical asset allocation for different portfolios.

'We have developed a custom mathematical program to assess the various investment classes in the different markets and also calculate the most efficient portfolio structures that would generate the highest returns within the specified risk levels.'

'For every risk level, we design a custom portfolio that generates the highest possible expected returns, based on historic and expected future performance of these asset classes,' El-Kewaiz added.

In its quarterly report, Derayah recommends a neutral stance regarding developed equities which includes American, European, and developed Asian markets.

For the American markets, the report recommends moderately overweight stance since the larger US companies have managed to accumulate strong cash balances and there are expectations of stronger profitability in the coming quarters.

For the European markets, the report recommends a moderately underweight stance because the withdrawal of the stimulus plans will strongly impact the growth in the region.

The report also recommends the same for the developed Asian markets because the appreciation of the Yen will hamper the economic growth of Japan.-TradeArabia News Service