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UAE investors rebalancing portfolios, study finds

A UBS study has found that most investors in the UAE were considering adjustments to their portfolios even before the US election.

UAE investors rebalancing portfolios, study finds

A UBS study has found that most investors in the UAE were considering adjustments to their portfolios even before the US election or make further changes based on the result.

The survey, which sampled 2,852 investors and 1,150 business owners across 14 markets, found that majority of UAE investors consider their home region to be an attractive investment, with optimism for local stocks for the next six months.

‘UAE investors are watching closely, and the vast majority consider portfolio changes both ahead and after the elections, depending on results. Clearly there is strong demand for investment advice,’ said Ali Janoudi, head of Middle East and Africa at UBS Global Wealth Management.

With a market share of 56% in the global equity market, the US represents the largest stock market in the world, and as such is an integral part in UBS’ tactical overweight allocation to global equities.

Niels Zilkens, lead market head for Arabian Gulf at UBS advises his clients to protect their portfolio against market volatility stemming from the US election and the uncertainties pertaining global pandemic through tactical hedges or the use of adequate instruments to gain downside protection.

‘This allows our clients to position for future growth, for example through exposure to longer term trends in the technology space, green technologies, or sustainable investing, while, at the same time, providing downside protection in line with their risk tolerance,’ Zilkens said.

He does not expect investors to reduce their exposure to the US stock market and would not recommend it. Notwithstanding occasional market turbulence Zilkens expects equities to benefit from the ongoing economic recovery.

Investors in the UAE have shown a resilience to economic downturns in the past and have also been able to look through the fog of negativity this time around.

‘We have seen a rejuvenation of economic activity in the region, with Saudi and the UAE leading. We were quite surprised to see the real estate market holding up and, in some areas, increased transaction activity leading to upward price movements,’ he added.

Internationally, investors are cautiously becoming more constructive on the region, but UBS expects many to time their investment.

Michael Bolliger, CIO for emerging markets at UBS anticipates temporary headwinds from rapidly increasing new infections rates in Europe, US and elsewhere, the prospect for further public stimulus, and energy prices to remain highly relevant.

‘In the first half of 2021, we expect the roll-out of effective and available vaccines to provide further market support for cyclical markets, which should likely benefit the region,’ Bolliger said.

UBS is seeing an increased interest in private equity from clients who have a long-term investment horizon and want to profit from the illiquidity premium which this asset class offers. It advises clients to allocate part of their overall assets into these alternative investments in order to optimize the risk-return profile of their portfolios.

‘Real estate is in general very close to most of clients hearts and we see enhanced interest for building up international real estate exposure, for example in Europe and the UK,’ Bolliger said.

Most of our clients have already quite substantial exposure to the local real estate markets so diversifying into other regions makes a lot of sense, in our view.’

According to Zilkens, the main concern amongst Middle East investors is still the potential drag on the economy from the pandemic. UBS expects more visibility on the pandemic and its repercussions in Q1 next year with the likelihood of vaccinations and further improvements of Covid-19 treatments.

‘Our chief investment office thinks this should support the ongoing global recovery and we advise our clients to position for further upside in risk assets such as stocks or higher yielding bonds,’ said Zilkens.

‘The extreme low interest rate environment globally and policy makers remaining highly committed to do “whatever it takes” to spur the global economy underpins this view.’

UBS also urges investors to invest in longer term trends, where they see the biggest prospects for enhanced returns. These include investment opportunities around the further advances in global technology, for example in the roll-out of 5G, green technologies, and sustainable investing.

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