The Economist warns that uncertainty has gone into overdrive, stock markets are volatile, and the fate of the economic recovery seems to hinge on the answers to a number of big questions. Capital Club Dubai hosted a livestream panel discussion to understand what is going on and the possible scenarios we can expect. Ersoy Erkazanci, TV presenter for Bloomberg HD & asset management advisor, moderated the discussions with guest experts Shankar Sharma, Vice Chairman & Jt. Managing Director at First Global, and Khatija Haque, Chief Economist and Head of Research at Emirates NBD.
Question: What is the post-pandemic recovery outlook?
Khatija Haque: The key difference between the pandemic recovery and the 2008-09 financial crisis, is the extent of policy support given by central banks and governments. The growth recovery for China, USA and the Eurozone is at the pre-pandemic period. However, the Delta variant created a slowdown in Asia, though not so much in the USA since they did not impose COVID- related restrictions at the federal level. Finally, the supply chain disruptions, causing shortages in raw materials will naturally have an impact on how quickly businesses can meet demands.
Question: What is the market situation?
Shankar Sharma: The last 12 -15 months has been a bull market and the reason is that all the sectors and stocks that did well were merited. For example, Netflix, Zoom, Microsoft, Apple, Amazon, pharmaceutical companies…the trade was logical, which is actually rare in a bull market. There was no disconnect between the fundamentals and the market during the pandemic period, unlike what happened to the run up to the global financial crisis. Also, the policy response was quicker, with governments learning to be smarter in reacting to problems.
Question: What are your views and outlook for this region?
Khatija Haque: The bigger economies of the West received fiscal stimulus packages while the governments in the region focused on providing liquidity to the financial system through the central bank instead of direct support to households in the form of unemployment benefits. Data does show that local consumer sentiment is starting to improve, and job creation is slowly increasing in the private sector. In terms of monetary policy, the longer that the Federal Reserve in the US keep interest rates low, the better for our region, since we’re pegged to the dollar.
Question: How important are oil prices for this region?
Khatija Haque: Though definite progress has been made on economic diversification in the region, the source of budget revenues continues to be highly concentrated on oil. However, the GCC governments recognize that they cannot sustain growth by spending more through the budget, therefore even with increase in oil prices, this has not translated into more government spending. In fact, the government budget deficits have been brought down quite significantly from last year due to prioritization strategies towards deficit reduction instead of increased spending. Further growth will have to come from structural reforms and from enabling the private sector’s contribution to the economy. To this end, many initiatives have been announced by Saudi Arabia, the UAE, and even smaller countries like Oman, to open up their economies further, making it easier for private sector businesses to operate, attracting investments, and reducing reliance on government spending in order to drive growth.
Question: What does the business ecosystem look like today?
Shankar Sharma: I think the trend is that VCs are more interested in visionary founder managed companies over traditional corporate board managed firms. This is a big change, and many great companies could arise in the near future.
Question: What about Dubai and the Expo expectations for economic growth?
Khatija Haque: I think the expo will help Dubai’s economy and has underpinned long-term capital expenditure projects, which has been creating jobs since 2012. There are a number of initiatives put in place to attract and retain talent, including visas for software development, fintech sector, different residency visa levels, etc.
Question: Can you give your view on market trends and investments?
Shankar Sharma: The worst performing asset class this year has been emerging markets, but the regional new markets, like KSA, and frontier markets like Vietnam have done very well. From a futuristic perspective, the opportunities lie in the riskiest end of the markets. I think it’s still a good time to be buy in emerging markets of Asia, India small caps, frontier markets, second tier tech, etc. The sectors hurt by the pandemic such as multiplexes, malls, and airlines will find it almost impossible to go back to the past glory days, because there have been some fundamental shifts. We have to watch out for fatigue in terms of growth rates for the larger tech, such as in China through policy action, and in the US with laws being passed to limit the power of big tech.