Dubai: Gulf investors, who sought refuge in bonds and real estate after the global financial crisis, have slowly increased their exposure to equities despite its stellar performance last year, and experts are urging them to invest even more.
The exposure of Gulf investors to equities has slowly increased to 20 per cent compared to a single digit earlier, Deepak Ahuja, director wealth management at RAK Bank told Gulf News.
“In early 2000s, this market used to heavily investing in equities and BRICS and emerging market was a significant part of their portfolio. That changed due to global financial crisis, and a small blip in the local economy, so people started moving completely towards a safe zone,” said Nisarg Trivedi, director at Schroders.
So a safe zone for them meant investing in bonds and real estate, which assured them of an attractive 7-8 per cent rental yields.
But Trivedi feels that investors must define if it is still safe to invest in bonds in a rising rate environment. “We need to understand that what they perceive as a safe zone, are they really in a safe zone. Bonds are a safe zone, but at a certain price point Today if we look back, there is a clear need of diversification,” said Trivedi. “The challenge on the bond side is that the large part of the market has rallied significantly, so for the risk you take the rewards are not as much commensurate as it was 2-3 years ago,” Trivedi said.
And equities can be an asset class which will continue to witness attractive returns if not stellar performance as seen in 2017. “We continue to like equities. While US equities have had a good run, we see opportunities in Europe, Japan and broader emerging markets. Valuations are attractive in these markets on a relative basis,” Ahuja said.
There are still a number of positive fundamentals that could keep the rally going into 2018, like robust US growth, and also company earnings, along with tax cut, which has the potential to positively impact companies. UBS expects earnings growth may exceed 15 per cent on year in 2018.
“We broadly are positive on what’s happening across the world. Obviously there are selective pockets of areas where we are a bit need to more cautious compared to where we were previously. 2017 had been an excellent year for an investor. We definitely are very excited to get into 2018 with a very positive backdrop. It won’t be non-bumpy ride, however,” Trivedi said.
“Equities look good, but they are expensive. They should try to less expensive side of equities, where there are still some fundamentals left, and we see market opportunities in that area,” Trivedi added.
Good combination:
“We keep on saying that the basic of any investment is not to keep all the eggs in the same basket. and in market like this that saying is much more profound,” Schroders’ Trivedi said.
According to Trivedi, a good combination of equities, and fixed income with an income derivative would be an ideal for an investor.
“They slowly started getting used to multi-assets funds. Multi assets as a percentage of portfolio has gone up also balanced funds and equities funds are getting popular,” Trivedi said.
Investors are preferring multi asset solution like investing in emerging equities, bonds and currencies. Others also prefer absolute return strategies along with inflation plus returns. For the sophisticated audience alternatives, liquid hedge funds are popular.
In all, the message is simple.
“You need to have equity if you need to have a kicker in your portfolio to derive that total return and perhaps a part of that income could be through dividend income or interest income. You need to step up your equity. There is not enough equity in clients portfolio here,” Trivedi said.
