|01-27-2015, 11:20 PM||#1|
Gulf equities unlikely to rebound soon, says NBAD investment chief
Gulf stock markets are highly unlikely to turn in impressive gains this year as the slump in oil prices have ignited speculations of slower economic growth, said a top executive at the National Bank of Abu Dhabi (NBAD).
“At this price of oil it’s difficult to be bullish,” said Gary Dugan, head of investment strategy at National Bank of Abu Dhabi and global wealth chief investment officer.
“The GCC has a period of adjustment to lower oil prices. The corporates are starting to feel it and we’ve only had it for a matter of weeks. If it goes on for months and it doesn’t seem to go away as a problem then companies will have to adjust,” Dugan added.
Regional equity markets suffered from a sharp selloff in December after the continuous decline in oil prices, with benchmark indices such as Dubai’s falling nearly 30% before recovering some of the gains at the start of this year.
Back then, Dubai’s benchmark lost 1.42% year-on-year, paring a 12% gain for the year.
The United Arab Emirates and Saudi Arabia are the world’s number eight and number one respectively in exporting oil, and both their federal governments fund a heavy sum of their budgets from oil revenues.
Global equities are not looking so good either, according to NBAD’s investment arm.
The exposure of the bank’s portfolio to equities was recently cut down to 35% from 40% on worries over weak global growth rate, and on concerns of deflation and other problems in Europe.
Worries of deflation have emerged after a six-year equity rally that was mainly spurred by low interest rates and highly accommodative monetary stimulus in the U.S. and Europe.
Together with falling prices, these are encouraging the chances of deflation and bubbles, mainly in the stock market.
Also, lower oil prices are hammering energy companies, and their resulting slower growth is likely to have an impact on other industries.
NBAD has already started advising clients to reduce their exposure to stocks and increase it in high-yielding bonds and gold to protect their wealth.
Regional stock market are witnessing a period of extreme volatility tied to the global equities as well as the oil market, and a solid recovery is unlikely to happen before the stabilization of the oil market.
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