Global Investment Outlook 2021

After the UAE, Qatar, Saudi Arabia and Kuwait were included in the MSCI EM index, the GCC represents 4.6% of the benchmark. This is increasing global awareness about regional stocks at a time when there are several reasons to be bullish about them, from stabilizing oil prices, to a weaker dollar and low rates.

With global bond yields having fallen to levels not seen in almost a decade and the amount of negative yielding debt reaching new records, bonds in the MENA region offer attractive risk-adjusted returns in 2021. The region has also lagged other emerging markets as lower oil prices weighed on investor sentiment surrounding it, and bond spreads in the region over Treasuries could tighten during 2021.

The potential for a moderate recovery in crude prices over the next two years suggests many of the swaps curves in GCC FX markets are trading at relatively cheap levels and should provide good opportunities this year.

This past year has been a tricky one for oil analysts, as a health crisis is a very different situation to gauge, compared to a more clear-cut economic one. However, FAB’s call in March last year for Brent crude to average USD 40/barrel in 2020 was reasonably accurate. As the pandemic begins to recede we remain optimistic that oil prices will continue to recover slowly in the year ahead, in line with the improving health of the world economy. Therefore, we expect Brent to average USD 58/barrel in 2021, and USD 65 in 2022.

The Middle East is likely to benefit from the next leg of the global energy revolution as much as it did from the first. The region is well-poised to become one of the leading producers of hydrogen. The infrastructure to produce cheap hydrogen using renewable energy has to be built and paid for. This potential demand for financing of green projects, whether it is reducing flaring at some of the oil and gas producing units, or building the complexes producing the energy of the future, suggests sustainable finance is on the verge of a boom in the Middle East.

Egypt was the only economy in the MENA region to record a positive growth rate last year (+2.75%), and one of just sixteen countries globally to grow by 1% or more. While Egyptian Treasury bills saw some investor flight early in the crisis, hard currency outflows have since reversed as the outlook for the global economy began to brighten.

A look at the Egyptian pound, the Ghanaian cedi, the Nigerian naira and the Ugandan shilling. These high-yielding currencies have weathered a storm in 2020, but as their economies stabilize and investors scour the globe for higher returns, they could return to favour.

With cash deposits now paying close to zero and high-quality liquid assets having seen their yields compress sharply, the question is now: where can investors get any yield? Here is a potential roadmap, including the roadbumps to be careful about.

With low yields across the globe asset allocation strategies have been shifting to add more risk, and this has put private market instruments in focus. However, investors need to be prudent as to how they access this space. For example, historically, large institutional investors have predominantly focused on private equity firms with a long track record of good returns, and individual investors should probably follow their cue.

The dollar could weaken further as the world economy recovers, and more investors are likely to move their attention to the higher-yielding, faster-growing jurisdictions emerging markets. Similar dynamics could also strengthen the euro.

A modest bear-steepening trend could continue to characterize yield curves this year, as long-term rates sell off in response to COVID-19 vaccine optimism and a subsequent improving macroeconomic horizon begins to come into view. But this steepening bias will probably be dampened by a generally modest global inflation outlook and dovish central bank bias for the foreseeable future.

The stars are aligned for good gains in developed world equities in 2021. Equities are not expensively valued relative to where interest rates are, and the main risk ahead for investors is that of a ‘melt-up’, with risk asset prices increasing too fast.

Early indications point to 3Q20 as likely being an inflection point in real estate capital markets. Following the sharpest drop-off in transaction volumes in recent years, direct transaction volume declines decelerated during the quarter. Now, real estate transaction pipelines are recovering globally, and offer a sense of optimism for the quarters ahead.