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Emirates NBD, Dubai’s largest bank by assets, has unveiled its top stock market picks for the year as it rebalances its long-term strategic asset allocation at the start of the year.
According to the bank’s latest report, the US and Japan are the top markets among developed markets, while India and the UAE are the top markets among emerging markets.
“We like the UAE and India both tactically and strategically. New listings in both regions will help performance, while domestic demand in India remains resilient. We are tactically overweight as part of the market overweight. In the longer term, we are cautious about U.S. technology sanctions and China’s own onerous policies on data and monopolizing technology and payment companies,” said Equity Strategist, UAE NBD CIO Office Director Anita Gupta in a report entitled An unstable transition to a changing world.
“Our fair value forecast to 2023 suggests low-single-digit upside for U.S. equities in line with S&P 500 earnings, with a P/E ratio of 18.2 by year-end. We expect European equities to perform in line with economic growth, ie a modest negative Returns. We expect more upside in emerging markets with lower valuations and relatively higher growth, i.e. mid-range,” it said.
Emirates NBD recommends income strategies as the best hedge against lower growth and possible recessionary outlook and recommends buying shares in companies with resilient income, serviceable debt and sustainable dividends.
In 2022, stocks are volatile, with negative returns in the first three quarters, as concerns over corporate margins and profit growth intensify due to rising interest rates, wages and raw materials.
Inflation figures in developed markets remain close to double digits even as the world reopens and supply chain pressures dissipate.
“The UAE, Dubai and Abu Dhabi stock indices were the second best performers in the world in terms of dollar. India and the UK rose in local currency terms, but the dollar did not,” it noted.
2022 is the worst year for investment portfolios
Emirates NBD said the stock index had fallen around 20 per cent last year and the safest bonds were down 17 per cent. Gold and hedge funds limited losses, but only cash provided positive returns.
“With heavy losses in both stocks and bonds, this was arguably the worst year in a century for a portfolio combining the two asset classes,” it noted.
Aside from a series of dramas, from the war in Ukraine to the new crown epidemic in China, including the European energy crisis and the cryptocurrency crash, the market is mainly dominated by one factor: Inflation in the West led to the largest and most synchronized monetary tightening in 40 years.
In essence, 2022 marks the transition from a deflationary era of ultra-low interest rates combined with the advantages of globalization to an inflationary era: money is no longer free, central banks are no longer supportive of growth, and international relations are severely fractured.
2023 begins with a rapid slowdown in the global economy and significant risks of a global recession. Market participants will focus only on one magic moment: the central bank’s pivot, the report said.
(Writing by Sunil S; Editing by Seban Scaria)
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