Equity will remain better investment

Abu Dhabi: Equity markets will present a better investment opportunity compared to global sovereign debt in the short to medium term, according to Citi Global Wealth Management's (CGWM) top executive.

CGWM is one of the most respected brands in its field, with assets under management of $1.7 trillion as of last December 31.

"Global sovereign debt is in our view the least attractive asset due to the declining long-term rates not only for US treasuries, but throughout the developed world.

"We think that the potential returns look fairly unattractive," Jeffrey Applegate, CGWM's chief investment officer, said.

"By contrast, we think there is a better opportunity in the more credit sensitive sectors, especially after the aggressive cuts introduced by the US Federal Reserve," he said.

After the surprise 75 basis points cut, followed by another 50 basis points, CGWM expects the Fed to continue the trend and cut a further 50 points by spring, as well as easing policies to be adopted by the European Central Bank and the Bank of England.

"That should mean fairly good news for global equities, although we still maintain that the US economy will continue to slow down towards a recession, then recover in the second half of 2008 towards year-end," he said.

Other attractive assets according to CGWM include hedge funds that have managed to navigate through a difficult market with a less volatile performance and real estate.

"In terms of cyclical economic developments, the cuts in interest rates approaching zero are usually followed by steep yield curves, which in turn will result in recovery of profits and subsequently the gross domestic product (GDP)," Applegate said.

The policies adopted by the US are not the ideal tools to manage the particulars of GCC economies, whereas robust growth and inflationary pressures necessitate a different approach, Applegate said.

"Kuwait is virtually leading the way in the region, as it enjoys more flexibility, having been able to depart from the peg to the dollar and adopt a flexible basket of currencies," said Mushtaq Khan, Citi's Middle East economist.

"The robust economic growth in the GCC and the UAE poses the challenge of managing such growth," he said.