Real estate in UAE seen to offer good affordability

DUBAI — Investors should re-balance portfolios in 2013 away from fixed income to take advantage of better returns in other asset classes, including equities, commodities and real estate, according to Emirates NBD Wealth Management, a part of the Middle East’s leading bank.

Mark McFarland, chief investment strategist at Emirates NBD Wealth Management, said on Wednesday that investors should also look closely at alternative asset classes. “Real estate in the UAE continues to offer good affordability while demand is seen rising, particularly in apartment and commercial sectors,” he said.

At a roundtable discussion on Wednesday, McFarland said investors need to run a balanced portfolio of multiple asset classes and geographies in 2013. Emerging market equities and commodities are preferred to US and European fixed income securities, he said.

“Looking at world markets, we see investment opportunities in equities and commodities across the globe; including Mena, where we favour high dividend equities over fixed income,” said McFarland at a recent roundtable: “The Year Ahead: Rising to the Challenge (of Taking Risk).

Besides real estate, McFarland also highlighted fine art. “While not a key component of a balanced 2013 portfolio, this does offer critical low volatility and low correlation to normal asset classes.”

McFarland said US investment spending is recovering while the US financial services and home building sectors are both showing signs of recovery. Although he sees this as positive for the US overall, the consequent increase in demand for supplies to these areas from outside the US — notably from Emerging Markets — should be significant.

“This demand for goods and services should be aided by the continued injection of liquidity, by Central Banking Authorities in the US and Europe, thereby facilitating the flow of capital from Developed to Emerging Markets,” he said.

McFarland is advising investors to hold over-weight positions in Japanese, Asian, Latin American and Russian equities. “Investors should only participate in fixed income if they intend to hold their positions for two to three years. We believe that portfolios should focus on bonds that are investment grade, not junk or high grade as these are either risky or too expensive.” From a commodity perspective, and in keeping with the need to capture emerging growth or recovery, McFarland favours palladium, agricultural, cyclical and industrial vehicles all of which have a direct correlation with Chinese recovery.

McFarland believes that investors should avoid US and EU bonds where yields have fallen sharply in the last two years. Similarly, European equities are at risk of continued political risk while US equities appear to have priced most of the expected positives into current levels. Unless investors are specifically hedging against underlying risk, McFarland believes that inflation and volatility products offer minimal value for 2013 portfolios.

“Foreign exchange remains interesting to Emirates NBD Wealth Management,” he said. “However, portfolios should focus again on Emerging, rather than Developed, Markets.” He highlighted the Russian rouble, Mexican peso, Turkish lira, Malaysian ringgit and the Indian rupee as of interest.

“We believe that the yen is likely to fall further and sterling is under-valued. The euro is tricky as it’s politically vulnerable, but very over-sold. The US dollar will rise in periods of market fear but is a broad sell when growth recovers. The large US deficit will make the US Dollar less attractive than Emerging Markets currencies in general,” said McFarland.

“The key to 2013 will be the potential for growth in the US which, in turn, will generate faster growth from outside the US, mostly in Emerging Markets. This will generate better market returns in emerging markets,” he said.

— issacjohn@khaleejtimes.com

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