Dubai: In volatile times, investors should not shy away from the markets, but work with threshold to eke out gains and scale down their expectations at the same time, forgetting the stellar 40 per cent returns witnessed in 2014.

The Dubai index which gained more than 40 per cent until November, gave up all its gains at one point only to end the year 11 per cent higher. The index registered a peak of 5193.03 on September 4.

On Thursday, the Dubai Financial Market Index shed more than 1.5 per cent to end at 3,674.40.

“It’s important to have a balanced view and not to put all money into equities. If the money is well allocated between the asset classes, then the risk is balanced out. Sitting out of the market is not really an option,” Muhammad Shabbir, head of equity funds and portfolio management at Rasmala Investment Bank told Gulf News.

Rasmala runs a Mena domiciled funds and has an asset under management of $1.2 billion.

“Investors should work with expectations and in this market, they should scale down their expectations. There is no dearth of 6-7 per cent opportunities, so you need not buy petrochemicals or any volatile stocks,” said Shabbir.

Rasmala sees a limited downside in crude oil, which stayed near its lowest level in six years on Thursday.

“There are no opportunities in fixed income market where you can make 4-5 per cent. Equity is the only class where if you take and manage your risk well, you can make profits. So you don’t aim for 40 per cent returns, right now we are in 7-9 per cent environment,” said Shabbir.

For example, Air Arabia, whose jet fuel expenses becomes a part of operating costs, has gained more than 13 per cent in the past one year. However, due to tumbling oil prices, the equity indices in the Gulf, it is expected to remain depressed.

“Investors should take risk on a limited scale. You need to take risk to make money,” said Shabbir.

Earnings growth

Earnings growth are also expected to slow in coming quarters though banks may be an exception. Rasmala expects earnings to grow by 8-10 per cent this year compared to 15 per cent last year.

The moderate to low levels of leverage for regional companies may limit decline in earnings due to an expected increase in borrowing costs, which are linked to interest rates.

The investment bank has increased exposure of transportation and logistics, which is the beneficiary of lower oil prices. The bank has also added health care to its exposure.

“We are less keen on real estate with the exception of Egypt, which is at the low end of the cycle,” said Shabbir. In Saudi Arabia, the bank is still interested in consumer spending. The bank feels that the retail or staple sector would gain prominence due to inelasticity of demand. The number of themes in the Mena region has increased to 25 from 18.

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The falling oil prices should benefit companies like Air Arabia, which has hedged only 50 per cent of its fuel needs as against 64 per cent in 2014.

The upcoming network expansion and growing frequency should improve the load factor and more than offset any pressure on yields from lower oil prices.

Plus falling oil prices could reduce fares and boost tourism, helping companies like Air Arabia.

Shares of Air Arabia, which is the largest low-cost carrier in the Mena region, ended at Dh1.66, down 1.19 per cent on Thursday.

Another example is Oriental Weavers (OW), which is listed in Egypt. OW is the largest producer of hand made woven rugs.

OW is best placed to benefit from any recovery in Europe and falling oil prices, and being export oriented, it enjoys a natural hedge against the Egyptian pound’s depreciation.