GCC defies investor caution over emerging markets

21 January 2014

Societe Generale forecasts positive outlook for region

The Gulf region remains an attractive market for investors, despite an increasing level of wariness over emerging market equities.

The impact of the US Federal Reserve’s decision to taper its bond-buying programme, coupled with slowing economic growth in some developing countries have made some emerging markets seem less appealing.

“This is not the case for Gulf countries,” said Xavier Denis, economist and strategist at French bank Societe Generale (SG), speaking at a press briefing held in Dubai on 21 January.

“For oil exporters [in the region], the momentum will continue to be positive and there is no [major] downside risk on the oil price. All these countries are posting strong external surpluses.”

Outlining the bank’s investment forecasts for 2014, Denis warned that SG was “cautious” about the emerging market sector as a whole.

The bank’s new report recommended avoiding exposure to emerging markets “characterised by the combination of current account deficit and high inflation”, such as Turkey, South Africa, Brazil, India and Indonesia.

“We think the emerging market story will continue [in the long term], but in terms of investments, looking at the one-year horizon, emerging markets will suffer a bit,” Denis said.

Philippe Boutron, regional chief investment officer at the French bank, based in Dubai, added that the Middle East is well-positioned to attract investment. “[We have seen] excellent performance by the stock markets here in the region, led by Dubai, Abu Dhabi and Doha,” he said.

He said the upgrade of these markets from frontier to emerging market status by the US index compiler MSCI is one factor strengthening the region’s investor appeal. The MSCI upgrade is effective from May.

In mid-January, the Washington-based World Bank issued a report suggesting that emerging markets could be sensitive to the US decision to end quantitative easing.

It warned that if interest rates in the developed markets rise too quickly, private capital inflows to developing countries could decline by 50 per cent or more for a number of months.

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