If you are “all in” on Middle East equities, it might be a good idea to add some diversification to your portfolio, said an investment expert listing top picks for regional investors in 2015.
The perfect portfolio adapts to shifts in the global economy, and includes elements of diversification, explained Simon Fasdal, director and head of Fixed Income at Saxo Bank, is a leading online trading and investment specialist.
“Diversification should be taken seriously. There is very little diversification in 20 different equities from the same index, and add to that the exposure you have as a property investor along with other assets, in the same country or region,” Fasdal added.
“Furthermore your scenario and portfolio will have to be built on certain assumptions.
“My Top Picks works under the assumption that oil will continue to trade at low levels below $80 for most of 2015. I also assume that FED will be less hawkish than expected, and hikes will probably be delayed again.”
“Despite the present turmoil with the Greek situation, I believe that European Equities should be part of your portfolio in 2015,” Fasdal said.
“It can seem strange that I, as a bond trader dare choosing Equities, but I think that we might have seen the final big bond rally in Europe, and from now on, the combination of QE, weaker Euro and a low oil price will work in favour of the European economy.
“I also think that the last year’s underperformance in Europe, compared to Japan and US, shows the potential for the recently introduced QE from Draghi. Countries of particular interest are Spain and Portugal as they will benefit the most, having already improved their competitiveness lately. German and French exporting industries will benefit and quickly recover from the present export crisis to Russia,” he added.
“Furthermore, as an investor with exposure to the Middle East, the European economy brings in a good diversification, as it is net oil importing.
“Finally, if the ECB’s mission is accomplished and the European economy and equity markets strengthen, we could easily see a reversal of the present euro-dollar trend, and revisit a stronger Euro. In that context a dirham- or dollar-based investor will benefit from both the equity exposure and secondly later on, from the currency appreciation in euro.”
Asian high yield bonds
The region that stands out as net winner of a lower oil price is Asia. The entire region will benefit from both lower oil and lower commodity prices, said Fasdal.
“Most economies in the region have seen too high an inflation and too low a growth. The dramatic drop in oil price is exactly the medicine these countries have been looking for, as it works both as a stimulus for consumer and corporates, but in the same manner works as an inflation dampening tool. India and Indonesia in particular focus on this,” he explained.
“Therefore bonds with both high credit spreads and high nominal yields are particularly interesting, as they will benefit from global spread contraction, as more and more bond markets will see yields lower due to lower oil and loose central bank policies. The attractiveness of high spreads and high yields cannot be underestimated in a zero yield environment.
“Currency wise, investors should consider a split between local currency and dollar denominated bonds,” he concluded.
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