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Liquid investments, not cash is what investors prefer

The Middle East contributes to 10 per cent of the business of Lombard Odier, in which they have seen a profitable growth

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An investor crunches numbers with his adviser. Emerging market equities are expected to generate low double-digit total returns in 2018, with good prospects for small caps in particular.
Gulf News

Dubai: Most of the clients of Lombard Odier have invested in investments that can give them quick liquidity instead of sitting on cash, Arnaud Leclercq, the company’s Group Managing Director and Head of the New Markets, told Gulf News.

At the end of September, Lombard Odier had assets under management worth $185 billion (Dh679 billion), and clients in Switzerland, Europe and emerging markets contributed to a third to each of those assets.

“This is a pattern that we are facing, with a possibility to be liquid rapidly in case of any risk. Liquid investments like global fixed income mandate by sectors and geographies. If they need to liquidate and sell, it gives more certainty to clients as they can be encashed in 48 hours, and still invest for a long-term,” Leclercq, who was on a field visit to Dubai, said.

Lombard Odier are mindful of the risks that exist in markets such as increasing prices of financial assets because of cheap liquidity triggered by the easy money policy of central banks and excessive valuation in US stocks.

“The markets are at a peak. In finance, as they say, trees don’t grow to the sky. How long it will stay so positive?” Leclercq said.

Lombard Odier is positive on European equities because of booming economic indicators.

“The political instability has had minimal impact on the markets than people would had expected. We think there is a room for improvement in European equities,” Leclercq said.

The firm is trying to protect the stellar returns that it has had on the balanced portfolio in US dollars.

“We are protecting so to say these very good results using options and other strategies, to protect the investment of our private or institutional clients,” he added.

Middle East

The Middle East contributes to 10 per cent of the business of the private bank, in which they have seen a profitable growth.

“We happen to have an Islamic mandate, which [has been] generating good response from last year, and we have more and more demand from this,” Leclercq said.

Since 2010, Lombard Odier’s Middle East business has grown by 49 per cent. and revenues have increased 88 per cent.

The average money clients invest stands at $5-20 million, in terms of investments, into tactical investments with equities as underlying and structured products.

But due to the uncertainty, Leclercq has a simple advice.

“People should never keep all the eggs in the same basket,” Leclercq added.

Robust returns

Investors can still expect robust returns for risk assets in 2018 amid a favourable economic backdrop after the exceptionally good investment year, Credit Suisse said.

The firm pointed this out in its investment outlook for 2018, backing this up with continued solid global growth along with corporate capital expenditure, which has been constrained to be key driver of growth going forward.

“Corporate capital spending, merger and acquisition activity and, in turn, increasing corporate debt look set to become big topics in 2018,” Michael Strobaek, Global Chief Investment Officer of Credit Suisse, said. “We expect 2018 to be a relatively good year for economic growth, which should help growth-sensitive assets continue to do well. However, we are mindful of the potential risks, whether they are of a political, economic, geopolitical or regulatory nature.”

Even after a year of exceptionally good returns in risk assets, Credit Suisse investment strategists believe that global equity markets have further upside potential in 2018, as strong economic growth boosts earnings and increases confidence. This should encourage further inflows into equities.

Emerging market equities are expected to generate low double-digit total returns in 2018, with good prospects for small caps in particular. In developed markets, Japanese and Swiss equities are seen as offering the best potential. Sector-wise, preferences include health care, telecoms, industrials and financials. Eurozone real estate equities also offer attractive opportunities for investors given still high yields.

Credit Suisse expects bond yields in most developed markets to rise moderately, while they should plateau in the US, at around 2.7 per cent.