Complex Made Simple

Exclusive: Till “debt” do us part – or not? An investment outlook

Quantitative easing is giving in to tightening; volatility is on the rise. With trade tensions, currency fluctuations, and rate hikes, where should you invest?

"The decade ahead looks set to be more challenging for investors than the previous one" "It’s a fantastic articulation between oil revenue developing non-oil growth" Gold and cash are the best defensive assets for the coming decade

For those who believe that the last decade has been volatile for investment, consider this: Despite contractions, there has been no economic recession; the “new” instrument of quantitative easing provided a formidable tailwind with central banks pumping fresh liquidity into the system, and there was stable weather with record low volatility.

2018 has, however, marked the beginning to a much more turbulent decade. Liquidity has given way to tightening. Economic growth has slowed down. The markets have become unpredictable, fluctuating almost 3 percent on some days. And to top it off, the huge burden of accumulated debt is bound to take its toll in the near future.

“For sure the developed world will experience a recession somewhere in the next five years. There’s absolutely no doubt; it’s the law of gravity. We think 2019 is safe, and we have reasons to think that 2020 could be as well because of the U.S. election … There will be trouble for the developed world. I’m afraid it might be a problem because of the high levels of debt. But again, we could have said exactly the same things 10 years ago, and we did not know then that Quantitative Easing was possible,” said Maurice Gravier, Chief Investment Officer, Emirates NBD Group.

20 years of global debt by sector – USD TRN (LHS) and U.S. 10Y yield (RHS)

With the right tools, however, it is possible to weather any storm. Despite markets overshooting fundamentals early in 2019, Emirates NBD remains mildly optimistic in its global investment outlook for 2019 – “Preparing for the next decade”.

“The decade ahead looks set to be more challenging for investors than the previous one, highlighting the need for discipline in portfolio construction, risk allocation, as well as selectivity of securities and products,” Gravier said.           

AMEinfo spoke to Maurice Gravier about the GCC region, Fed rate hikes, emerging market currencies and more.


Maurice Gravier, Chief Investment Officer, Emirates NBD Group



Q: Is the outlook for the next decade bleak for the GCC region as well?

Mr. Gravier: I am absolutely convinced that this region has its own self-sustaining drivers. It’s amazing what’s happening. The enormous driver for me is the transformation of Saudi Arabia with its Vision 2030, diversification out of oil, boosting the private sectors – it’s enormous. It’s really something that is historical. If there’s one country in the world that can afford a U.S. recession, it’s probably Saudi Arabia.

The UAE, in particular, is a close partner of Saudi Arabia. It’s also a gateway to an area from Africa to India, Pakistan, some parts of Europe – all of this is connected through Dubai. We’re talking about almost 700 million people; a very young population of millennials with tremendous potential for growth … Nobody is really immune to the recession from a market perspective, but the long-term perspective is fantastic.

Q: Faster output growth, an increase in the new orders index and stronger demand have spurred non-oil growth in 2019. Do you expect non-oil growth to outdo oil growth in the coming decade?

Mr. Gravier: In the decade, without a doubt. But it’s a fantastic articulation between the revenue of oil developing the non-oil growth and I think it’s very harmonious. I’m not at all calling for the end of oil … but for sure, the non-oil is accelerating and it’s on purpose. There is a very successful execution of the plan, especially in the UAE. In Saudi, it’s impressive as well about this diversification. Where there is a will, there is a result, and yes, for sure non-oil will be higher. 

Q: The Emirates NBD Outlook for 2019 expects two rate hikes by the U.S. Federal Reserve. The December 2018 Fed minutes took a hawkish stance speaking of “gradual increases” in rates, which was then followed up with a slightly dovish stance in January with the statement reading “the Committee will be patient.” Is this just an attempt to lower negative sentiment or does this reflect a long-term policy change?

Mr. Gravier: It’s a fascinating point. The mission of the Fed is quite simple – to foster stability and employment. So, based on that there’s absolutely no doubt that there should be more hikes. The Fed hikes rates for two reasons to avoid overheating – and frankly there’s no overheating – and the second key point why they would raise rates is to be able to lower them for the next crisis. So, they are obsessed, and rightly so, by the next crisis. If they want to be able to fight the next crisis, they don’t want to trigger it.

Our general perception is that they have understood that their monetary policy was hurting markets at a moment in time when we were witnessing the trade tariffs and Brexit and many things. I think it is by pragmatism that they have said it would be “paused”. Frankly, the U.S. macro-economic data is not weaker; not at all; things are just fine; the unemployment rate is at 4 percent. They should fundamentally hike the rates. We are not saying that they will necessarily have two hikes, but this is our official view from our chief economist – and he’s absolutely right.

What is very interesting for us in this January move is the fact that the Fed and all the central banks have generally taken years to be very clear, to be explicit on their forward guidance. They generally tell you what every member thinks in terms of where the rates should be. And, suddenly you feel that, oh no, we don’t know. And I don’t think we should be very happy about that. We like visibility.

A man walks past the Federal Reserve Bank in Washington, D.C., US. (Image: Reuters)The Federal Reserve Bank in Washington, D.C., US. (Image: Reuters)



Q: Last month, Fed Chair Jerome Powell raised investors eyebrows while speaking of a “substantially smaller” balance sheet. But in January, the Fed modified that tune to say that it would consider being “flexible” regarding balance-sheet normalization. Does this mean that the Fed intends to have a large balance sheet even when it’s done trimming it?

Mr. Gravier: What it means is that they will not end Quantitative Easing on “autopilot”. It means that don’t worry, we’ll take care of the conditions, even to reduce the Quantitative Easing … and the markets love that, and rightly so. This shows that the Fed cares about what happens to markets. The question three months ago was: “Is Mr. Trump putting pressure on Mr. Powell?” and I think it’s not the case. It’s just that the Fed cares about the markets. It’s part of their role to ensure a stable financial environment that they are here to provide.


Q: Analysts are expecting the developed market growth to slow to 1.7% in 2020 while emerging markets are expected to grow to 4.2% by 2020. Will this signify that emerging market currencies will bounce back through the next 24 months? 

Mr. Gravier: That’s another excellent question. I think our stance, and especially after the Fed, is that the dollar should have peaked … but overall, we believe that emerging markets local currency risk is actually quite compelling. In our positioning, we have put an allocation to emerging market bonds in the local currency, which is not in our benchmark, because it’s back. Again, that’s the key message. We do long-term projections and we use short-term volatility as a means to allocate an entry point and an exit point. In the short-term, we have little clue, but in the long-term, we believe that the dollar may have peaked.

Highlights of the Emirates NBD 2019 Investment Outlook:

 Asset Allocation and Portfolio Construction

  • Gradually taking profits on the developed market (DM) government bonds to reinforce cash and equity
  • Emerging Market (EM) debt and global equities are preferred sources of return; gold and cash the best defensive assets

Emirates NBD long-term capital market assumptions


  • DM: neutral U.S.; slightly underweight Europe; slightly overweight Japan
  • EM: Asia is favored, with no specific country bias. Positive on KSA with MSCI EM inclusion acting as a catalyst
  • Sectors: Technology is a preferred growth sector; healthcare is the preferred defensive sector.


  • Favor Corporate Credit and EM debt over DM Government bonds
  • Favor Investment Grade over High Yield in credit
  • GCC bonds offer value across select Sovereigns and Credit (Utilities, Energy, and Financials including hybrids)

Oil Outlook

  • Oil prices to fluctuate against weakening outlook for the global economy
  • Brent futures expected to average USD 65 per barrel in 2019 with significant volatility