Find quality stocks for investments in times of volatility, GCC investors urged

Dubai: You may have heard stories of more than $8 trillion (Dh29.4 trillion) wealth destruction due to massive volatility in global markets, but Vaqar Zuberi, Portfolio Manager and Senior Analyst with Mirabaud Asset Management’s Hedge Fund team wants investors to make use of volatility to go into high quality stocks.

“Volatility is the best gift for a long-term investor. Periods of volatility such as what we have seen allows quality assets at prices which makes them fantastic buys with a long-term view. We are advising clients to participate in quality stocks and this is what we are actively doing across portfolios,” Zuberi told Gulf News during his recent visit to Dubai.

“Rather than looking at this period as stress, we are looking at this as a period of opportunity, actively upgrading the quality of our investments. Our managers are buying companies which they have been looking at for many years and finally getting the opportunity to invest in them at much lower prices,” Zuberi said.

Among the global equities, Mirabaud is constructive on emerging markets.

“We feel that some of the best growth stories are available in emerging markets and can offer you more returns than someone can get in US or European equities. We are finding great opportunities in India, China, Russia,” Zuberi said.

Bullish

Alexandre Drabowicz, head of investment specialists for equity strategies at Amundi, which manages close to $1 trillion in assets, is also bullish on emerging market equities.

“In emerging markets, we are seeing some light at the end of tunnel, which are going through significant adjustments. The external conditions in emerging markets have improved definitely. Investors should contemplate coming back to emerging markets given though market valuations are extremely low, and commodities have stabilised,” Drabowicz said.

According to the Flow Show report from Bank of America Merrill Lynch, $3 billion have flowed into emerging-markets assets over the past two weeks alone triggered by a dovish stance from the US Federal Reserve.

“We [are] a bit contrarian and once the market starts balancing we would see a lot of short covering in emerging markets. If you don’t start investing in emerging markets today, you never will,” Drabowicz added.

In emerging markets, Amundi likes India, Thailand and Mexico, and is avoiding countries like Brazil, which are commodities related, and Taiwan among others. Amundi has a total of $120 billion in equities of the total $1 trillion in assets.

Underweight

Amundi advises investors to remain with European equities.

“Overall in our view, the expansion of stimulus is a positive signal for risky assets in general and particular Eurozone equities. We are concentrating our attention to price to earnings and earnings growth to be the driver of performance,” said Drabowicz.

The European Central Bank surprised the market a couple of weeks ago, announcing quantitative easing by further negative rates, increasing the monthly purchase of bonds to €80 billion a month from €60 billion a month. The ECB is extending the purchase of investment grade corporate bonds to continue easing interest rates and credit conditions.

The dividend yield in euro equities is 4 per cent, which is double that of US equities, according to Drabowicz.

In Europe, interest rates have gone more and more in negative territory, and in the US it is expected to go back up. The gap between dividend yield that is provided by equities, and yield that is given by the fixed income, has never been so wide, he added.

Amundi is underweight on US equities on expectations of earnings revision from companies, and expects future performance would be linked to earnings growth.

Since 2009 until December 2015 all major central banks US, Europe, Japan and China had embarked on quantitative easing measures to boost their economies after the global financial crisis. In December, the US Federal Reserve was the first central bank to move away from quantitative easing to raising interest rates, taking a cue from the strength of the US economy.

Factbox: Mirabaud allocates more to event driven strategies

Mirabaud manages $30 billion (Dh110 billion), with 70 per cent of the money coming from institutions and the remaining from private clients. In the gulf region, the firm has relationship with institutional clients since 1990s, and has been developing private client capabilities in the region.

“Our view is that hedge funds would perform very well this year, and markets would remain volatile and this volatility would allow both equity strategies, credit strategies and global macro strategy to be well positioned to benefit from this volatility,” Zuberi said.

Mirabaud has about $5.6 billion of hedge fund investments, and it is broken up in long short equities, which is about 60 per cent, and global macro strategy is about 20 per cent. Mirabaud has allocated more to event driven strategies investing in merger and acquisition deals in the US and Europe, which has a low co-relation to markets. The hedge fund has also invested more in activism mostly in the United States in the past two years.

“We have dedicated more resources to the event driven and activism investing,” said Zuberi.