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The Emirati investor: Outside-in or inside out?

Booms and busts don’t kill us, but they could make us stronger

Gulf News

According to Nietzsche “out of life’s school of war: what does not destroy me, makes me stronger”. Investing in the period from Q4 2008 (Lehman’s) up until today has felt like a war-zone. Without wishing to belittle the horror of war; the angst of poor investment performance has its stresses and reaches far into the community; but it doesn’t kill us!

We survive, and “good” survival means understanding our environment. Listening to a debate between Multi-Managers: Sean Daykin (Emirates NBD), and Glyn Owen (Momentum) — it is quite clear that the research departments of both take the view that low growth and the stresses of continued global deleveraging will hang around for some time. Single digit investment performance to these guys is the “new normal”.

In this environment, investors have not been killed off, but they have been put-off. Cash returns are below the rate of inflation (and therefore costing us purchasing power), it is an environment in which traditional safe havens such as gold have not provided their usual “non-correlated” protection; and that other safe haven: bonds, have nowhere to go in terms of making money (the graph repeats last week’s graph showing limited joy this century from equities. This week we add the fact that the century has been excellent for US bonds. However, at around 1% interest rate how much lower can rates go?).

This is an environment in which investors must be shrewd. So what is shrewd?

The hat and the ghotra

Arabs like myself who are western educated and have local passion and pride should see a strong logic to adjusting both their hats and their ghotra when providing financial advice.

Adjusting the Arab ghotra

Investing in UAE assets has also been a roller coaster over the current century. This century I reached adulthood, and my investment experience supported by the graphs show that investing in UAE stocks and property has provided both exciting upside and exacting downside.

However, booms and busts didn’t kill us, and I will go as far as to say they have made us stronger. Earlier this year the Central Bank made regulatory steps that would prevent any of the Emirates repeating the scenario that led to Abu Dhabi’s $20 billion bailout of Dubai. I have had the pleasure of meeting with the SCA (The Emirates Securities and Commodity Authority) and sense a significant wind-of-change in how Financial Consultancy will be regulated; and, I am pleased to see regulators and the exchanges encouraging the fledgling UAE-FSA (Financial Services Association). Likewise, it is clear that where there was nothing, the real estate world has the likes of Rera caring about the plight of end-user investors.

The boom-to-bust did not kill us. Potentially, it has made us stronger.

The only real losers on property are those that sold when the price was down, and those speculators who were buying for the wrong reasons.

Property, of course, enjoys intrinsic value. Harder to stay “in-the-game” on stocks. However, YTD figures on the DFM, for example, are in excess of 10 per cent. You have to be in it to win it.

The real lesson of UAE assets is that we are not living on an isolated economic island. The small “pre-emerging” markets that are the DFM and ADX are vulnerable because of their size. My advice is; yes, support them for sure. Buy the companies which you believe in. But focus on weight.

Adjusting the western hat

The risk of UAE and Mena stocks are better enjoyed when they are a smaller weight of a global economic portfolio.

The UAE is a quasi-USD monetary environment. Indices which reflect assets in US companies essentially carry less volatility than UAE counterparts simply because of the size and liquidity of the market.

This brings us full circle. We started by highlighting the fact that global assets are looking at a few years of hard grind. The biggest mistake we can make locally is to assume that the UAE is isolated from this hard grind.

Surviving this decade has made many local investors stronger. Moving forward the strongest local investors will have their assets in both local and global assets. For the ploy to fail, capitalism has to fail. If that happens... do we really need the money?