CIO Office Weekly Market View- November 19th 2009 Gary Dugan CIP Private Banking Emirates NBD

Published November 19th, 2009 - 10:02 GMT

Global markets remain in a nervous mood. We are worried. Last week’s US economic data did not
make good reading. After a good run from the equity markets we would suggest taking profits and
waiting for a better day to reinvest. We are more tempted to take profits in the developed markets. In
the emerging markets the data remains upbeat providing better support for the local markets however
we are always concerned that developed and emerging markets will remain highly correlated.ovember 16th, 2009
Large companies are outperforming small companies and quality is outperforming. Investors
appear to becoming more discerning about the stocks they are buying. Investors no longer seem to be in
the ‘buy anything’ mood. Investors are distinguishing between those companies that have good long-term
fundamentals and those stocks that had only gone up just because they had previously fallen. Such
outperformance of the better quality companies again typically marks a flatter performance from the
markets. In the US last week large companies outperformed small companies by over two percentage
points. Interestingly in the US this year although large companies have outperformed small companies
(23.0% return for the S&P500, 17.7% for the Russell 2000) mutual funds that invest in large companies
have underperformed mutual funds that invest in small companies (a year-to-date return for 26.7% for
small cap funds versus 24.6% for large cap funds). We believe that it is always worth having some
exposure to mutual funds that invest in small companies as managers typically find it easier to add value
through active stock picking.

We remain somewhat cautious on the near term outlook for the oil price. Commodities were flat
on the week. Oil prices came under some downward pressure due to higher than expected inventories,
and Saudi Arabia’s decision to reduce the cuts in oil supply to International Oil companies. The move by
Saudi Arabia is being interpreted as a decision to keep the oil price capped at no higher than $80 for the
moment. That the oil price did not sell off more is probably due to the ongoing hurricanes in the Gulf of
Mexico that is reining in production of many of the refineries.

We remain positive on emerging market bonds. Emerging market bond spreads narrowed last week
by 10 basis points the first narrowing in three weeks. The JPMorgan Emerging market bond index saw the spread over US Treasuries fall to 318bps. With many investors continuing to seek yielding assets we
believe that emerging market bonds will remain in demand and that the average spread will continue to
narrow offering some hope of capital performance.


News in the region was mixed last week. The UAE registered strong gains in consumer confidence in
Q309 according to a recent Nielsen Consumer Confidence Survey, rising by 9 points to 102. However,
elsewhere Saudi Arabia saw inflation fall further to 3.5% y/y in October from 4.4% in September,
implying that actual activity in the region’s largest economy remains very subdued. Inflation in Oman also
fell back and credit growth in Qatar also edged lower, highlighting the breadth of the downturn across the
GCC. Last week the announcement that Dubai government repaid a US$1-billion sukuk in conjunction
with confidence-boosting statements made by Sheikh Mohammed allowed the UAE bourses to beat the
week's downward trend in the Gulf region as a whole. In the coming week the Kuwait Stock Exchange
may come under downward pressure as some listed companies may choose to delay releasing their weak Q3 results. Already yesterday Burgan Bank published Q3 results showing a 91% fall in profits.


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