Global Investment Outlook 2023

FOREWORD

After such difficult markets last year, and in the face of still challenging geopolitics, global and regional asset allocators have to deploy cash and manage portfolios. This year’s GIO theme – ‘Heading into a New Cycle’ - embodies renewed optimism, as we see risk asset prices looking across the valley of what could be an ‘instant’ slowdown. Investors will need to be bold. Meanwhile, our region looks very resilient indeed, driven by successful industrial diversification, and reforms. The clients of FAB can benefit from the entire team of economists and investment professionals whose views have been brought together here. We wish you all the best in the markets this year, and stand ready to help provide the advice you need.

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Lead Articles

We expect a ‘flash’ US economic slowdown, with that being a cue to buy risk assets. Stocks should bottom very soon afterwards, with limited downside. In bonds, good returns existing in short maturities (rather than in longer maturities) should reverse. Opportunities to beat deposit rates handsomely should present themselves.

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The coronavirus may not pose the health risk it did, but its socio-economic impact continues. Global risk has been compounded by the ongoing conflict in Ukraine, and many people are suffering acute food insecurity. The tense relations between the US and China, and increasing populism in a number of countries is concerning.

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The main risk for the global economy (especially in the US) over the coming months is the lag between monetary policy adjustments so far (large rate hikes, reversals in quantitative easing), and their effects being felt in the real economy. Given further expected tightening, we don’t believe a slowdown (or worse) is avoidable.

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Crude Oil & Carbon Trading

Carbon Markets: An Introduction and Update

Carbon markets have progressed considerably over the last 25 years, and more recently in the MENA region. Solutions to reach emission targets include setting a price to pollute via carbon taxes, or the creation of markets where polluters buy carbon offsets from projects that remove or avoid emissions. Indeed much opportunity for carbon trading in the region exists in voluntary carbon offsets. FAB is now very much part of the fast-growing Abu Dhabi carbon ecosystem.

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Oil Market Outlook

The oil market will continue to face both economic and geopolitical uncertainty. The limited spare production capacity, the low level of fuel product inventories, and tighter sanctions on Russia should provide support for crude prices. However, thoughts of global recession encourages a more cautious immediate outlook. Longer term the conclusion improves, given that despite some growth in green energy the world will still need hydrocarbons for many years to come.

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Development in MENA & Egypt: Macro & Markets

Emerging Markets Outlook

Developed Markets Outlook

The Outlook for Global Developed Market Equities

The global environment continues to be challenging as we enter 2023. The markets are still contending with geopolitical and other issues. We believe, however, that the October market low of 2022 will hold. A sharp recession will likely arrive in the US, but a pivot in Fed rhetoric should save the day. Forecasts by analysts should see further downward revisions, with one more down-leg in markets before investors begin to discount the earnings recovery we expect in 2024

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The Outlook for Global Developed Bond Markets

Currently, Fed funds futures discount a peak of 4.86% after the June 2023 meeting. We believe that in the immediate months to come, high yields at the short end should protect investors, helped by the fact that many IG bonds are trading at significant discounts to par. From about mid-year onwards the combination of income and price appreciation should provide good total returns. As rate expectations peak the outlook for the broad asset class should improve.

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Real Estate
Developments in Investment projects & Solutions
ESG

Global Commercial Real Estate Outlook 2023 - Identifying the Trends

The outlook this year will likely be driven by the difficult economic backdrop. Interest rates are rising and recession is expected in major economies, so deal flows are likely to shrink. Investors should increasingly move away from single-use assets, and employ ‘sustainability’ metrics resulting in portfolios containing more multi-functional assets, or which could be over time. Longer term the consensus view is one of cautious optimism, overcoming some short-term pain.

UAE Real Estate Outlook

Whilst there are mounting global economic headwinds, the UAE’s economic outlook remains relatively healthy in comparison, despite interest rates being at 15-year highs. With continuing government-led economic and social reform, similar to what has already been achieved in terms of long-stay visas of up to 10 years for professionals and investors, the UAE has become an even more desirable place to live and work as we enter 2023.

Thematic Investment: A Review and Update

Thematic investment usually identifies investment opportunities linked to trends driving economic development. Such an approach is designed to make sense of long-term structural trends, rather than starting with specific businesses or sectors, enabling investors to potentially profit from fundamental shifts. The key themes discussed are: technological innovation, urbanization, environmental changes, ‘next generation’ economies and demographic change.

Dollar-Cost Averaging

Dollar-Cost Averaging (DCA) is a very simple investment strategy enabling regular investors to build worthwhile capital amounts over a period of time, normally over at least five years. DCA has worked very well in comparison to ‘buy-and-hold’, and usually vs. market timing. Investing the same amount in an asset class regularly, investors buy more units when prices are low, and vice versa. The math is powerful, yet the concept appears very under-appreciated by investors.

ESG: A Sound Case for Profitability

Environmental, social and governance (ESG) factors have evolved substantially, becoming an integral part of strategic decision-making in many industries, and in economic planning. Many academic studies suggest that applying good ESG factors enables businesses to outperform competitors who do not. ESG has also become a business opportunity. Not applying ESG can carry risk, via reduced revenue, asset depreciation, litigation costs, and unnecessary controversies.

Green Bonds

Green bonds were created to fund projects that have positive environmental and/or climate benefits. They have identical financial characteristics to conventional bonds, including credit quality, yield, and issue price, although their proceeds should be exclusively used for financing green assets, projects or businesses, (e.g. renewable energy technologies, or to mitigate climate change). Funds raised can also provide social benefits. FAB is the regional leader in green bonds.

Global Investment Outlook 2023

Lead Articles

Heading into a New Cycle

Key Risks to Watch for in 2023

Global Rates Outlook 2023

Crude Oil & Carbon Trading

Carbon Markets: An Introduction and Update

Oil Market Outlook

Development in MENA & Egypt: Macro & Markets

Emerging Markets Outlook

Developed Markets Outlook

The Outlook for Global Developed Market Equities

The Outlook for Global Developed Bond Markets

Global Commercial Real Estate Outlook 2023 - Identifying the Trends

UAE Real Estate Outlook

Thematic Investment: A Review and Update

Dollar-Cost Averaging

ESG: A Sound Case for Profitability

Green Bonds

Executive Summary

Lead Articles

Crude Oil & Carbon Trading

Developments in MENA & Egypt: Macro & Markets

Emerging Markets Outlook (ex-MENA)

Developed Markets Outlook

Real Estate

Developments in Investment Products & Solutions

ESG

First Abu Dhabi Bank