Gulf economies poised for recovery in 2010, forecasts Emirates NBD

• Global economy consolidating after ‘V’ shaped market recovery; withdrawal of stimulus to be key theme in 2010
• Growth in hydrocarbon sector likely to surge; non-energy sector to be boosted by strengthening external demand and higher energy prices
• Asset allocation to be driven by monetary policy measures and strengthening US dollar; corporate results for 2009 likely to be stronger than expected
• Forecast provided by Emirates NBD Private Banking CIO and Chief Economist ahead of regional investor roadshow

GCC economies are poised for gradual recovery in 2010, led by growth in the hydrocarbon sector and higher energy prices, according to Emirates NBD, the Middle East’s largest bank by asset size.

Over the same period, the region’s non-energy sector is likely to be boosted by strengthening external demand and higher energy prices, as per the bank’s outlook. This forecast was provided by Gary Dugan, Chief Investment Officer of Private Banking, Emirates NBD, and Tim Fox, Chief Economist of Emirates NBD, ahead of the bank’s regional investor roadshow, which begins today in Dubai.
Addressing the investment outlook for 2010, Dugan said that asset allocation among investors was likely to be driven by monetary policy measures of regional central banks vis-à-vis the United States Federal Reserve, and the strengthening of the US dollar.

Highlighting that the global economy is now stabilising after an encouraging “V” shaped recovery, Fox said that the withdrawal of stimulus measures was likely to be a key theme over the next 12 months.

“Increasing oil price will continue to be fundamental to regional recovery in the short term, with non-energy sectors drawing on demand from outside the region and continuing strong energy prices,” said Dugan. “We anticipate corporate results for 2009 in the region to be stronger than expected, with gradual growth in GDP output across the region.”

Highlighting the oil overweight in the regional economic recovery, Dugan stated that oil prices were likely to continue strengthening in the short term. “Demand for oil is improving,” he said, “and we are already seeing Chinese demand rising above its previous cyclical peak. We believe that longer-term increases in the intensity of energy use in India and China will meet limited supply, leading to higher prices.

“On the asset allocation side, we are positive on equities in 2010,” he added. “We remain optimistic about equities in emerging markets, which may be supported by positive surprises on corporate profits. Energy, technology and green sectors are likely to see the most interest over the next 12 months, with an increased appetite for mergers and acquisitions.”

“Globally, trade has started to recover, and economic growth is returning,” said Fox. ”Consumer spending in the United States witnessed an upward trend towards the end of 2009, with a visible improvement in overall financial conditions. Despite weaker than expected unemployment figures in December, our confidence in a recovery in the United States is growing. However, this has been coupled with lagging recovery in the eurozone, and in the United Kingdom. Internationally, a key risk in 2010 will revolve around central bank policies and the withdrawal of monetary stimulus.”

Sounding a cautious note on bond investment, Dugan said: “As far as bonds are concerned, developed market government bonds are unlikely to offer much value in 2010. However, emerging market bonds continue to be well supported. The Middle East and North Africa region, especially, offers good risk-adjusted returns, with increasing international interest. We believe the regional bond supply is being met by retail demand.”

“Although the global recovery is well underway, it is unlikely that economies will return to their trend growth rates before 2011,” Fox concluded. “The next 12 months will likely see a continued recovery of the US dollar. However, investors will have to remain wary of rising bond yields and generally volatile trends in currency markets.”