21 Nov 2018
Perspectives November Publication

Welcome to the 20th edition of Perspectives. 

Global risk assets had a rough start to the fourth quarter, as widespread risk-off sentiment sent U.S. and international stocks sharply lower. Markets ignored strong economic data in the U.S., focusing instead on fears about the impact of rising interest rates, increased U.S.-China trade tensions, and future earnings uncertainty. This led to the S&P 500’s largest monthly decline in seven years. 

In the first article of this edition, we explain why we stay positive on risk assets even though we expect market corrections to be more likely and more frequent going forward. We then look at the policy and market impacts of the U.S mid-term election which produced a legislative gridlock, as widely anticipated by the markets. 

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17 Oct 2018
Perspectives October Publication

Welcome to the 19th edition of Perspectives, where we review the third quarter of the year and share our thoughts for the months to come.

As highlighted in our Q2 outlook, “the world is bifurcating” and this happened to be the case again during the past quarter. Indeed, the U.S. economy and corporate America have been outperforming the rest of the world and the trend has been reinforcing during the third quarter. This macro-economic and fundamental performance divergence has translated into financial assets relative performance, with U.S risks assets clearly outperforming.

Performance divergence has not been occurring solely across international equity markets. Within U.S equities, “Growth” style has been outperforming “Value” style for seven quarters in a row. There are also large performance dichotomy within commodities, credit and even within our regional equity markets. 

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10 Oct 2018
Global Outlook Q4 18

Welcome to our quarterly outlook, where we review the third quarter of the year and share our thoughts for the months to come.

As highlighted in our Q2 outlook, “the world is bifurcating” and this happened to be the case again during the past quarter. Indeed, the U.S. economy and corporate America have been outperforming the rest of the world and the trend has been reinforcing during the third quarter. This macro-economic and fundamental performance divergence has translated into financial assets relative performance, with U.S risks assets clearly outperforming.

Performance divergence has not been occurring solely across international equity markets. Within U.S equities, “Growth” style has been outperforming “Value” style for seven quarters in a row. There are also large performance dichotomy within commodities or credit. 
 

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16 Sep 2018
Perspectives September Publication

Welcome to the 18th edition of Perspectives.

At first glance, the backdrop for financial markets and the global economy remains healthy. Despite the collapse of the Argentinian Peso and the Turkish Lira, escalating trade war and the upcoming US mid-term election, August was the calmest in 50 years for the S&P 500 but also a historical time for the index as the current US equities bull market officially became the longest ever. In a dedicated section, we first review the key factors behind this record run, the sectors which have been benefiting the most from it, the impacts on valuation metrics and why this rally has been the most hated of all time. We then take exception to the claim that this is the longest bull market in history by showing that this could be a much younger rally than the consensus thinks.
 

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19 Jul 2018
Global Outlook Q3 18

Please find enclosed our Global Outlook Q3 2018

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18 Jul 2018
MENA Q3 Outlook 2018

Please find enclosed our Q3 2018 House views for Middle East equities.
 

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15 Jul 2018
Perspectives July Publication

Welcome to the 17th edition of Perspectives, where we review the second quarter of the year and share our thoughts for the months to come.

The first half of the year is already over! The list of geopolitical risks that have dominated the headlines throughout the second quarter kept expanding and included fears of trade wars, the U.S pulling out of the nuclear weapons agreement with Iran, relations between the U.S and North Korea and credit risk fears in Italy. When it comes to financial markets, the most important feature of the last 3 months has been the performance divergence between the U.S and the rest of the world. While the U.S equity and credit markets have been resilient, risk assets within Europe and Emerging Markets have been correcting. Much of the performance divergence can be attributed to bifurcating growth prospects and the strengthening of the dollar. Despite the rebound of the greenback, commodities have been doing surprisingly well and are now the best performing asset class since the start of the year. In the first part of this edition, we review in detail what we consider to be the “Ten stories to remember” from the first three months of the year.

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14 Jun 2018
Perspectives June Publication

Welcome to the sixteenth edition of Perspectives.

As we progress towards the summer, global investors have to climb a new “wall of worry”: a populist government in Italy, European banks under pressure, a potential “domino” effect in Emerging markets (Argentina, Turkey, Brazil, etc.) and the Tariff debate. Meanwhile, the U.S stays unscathed as strong economic and earnings momentum continue to propel the Nasdaq index to new highs. In this publication, we review these recent developments and explain why they should not be treated in isolation. Indeed, we live in a world of financial interconnectedness; a European crisis will further strengthen the dollar, which itself will spur more stress in Emerging markets and so on. Both will affect investors’ sentiment and weigh on global credit spreads and equity valuations. As such, it is difficult to envisage even the U.S staying fully insulated.
 

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14 May 2018
Perspectives May Publication

Welcome to the fifteenth edition of Perspectives.

To paraphrase a former hedge fund manager, there is always a bull market somewhere. So far, 2018 is no exception to this rule. While global equities and bonds are still in the red on a year-to-date basis, Middle East equity indices and global commodities markets have been roaring. In this publication, we use the concept of an investment clock as a way of relating the economic cycle to asset and sector allocation. Recent news flow and market action seem to indicate that the clock is ticking. This could imply an important rotation where previous underperformers start to become the new market leaders.

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16 Apr 2018
Global Outlook Q2 18

Please find attached our Global Outlook for Q2 18.

Big US Tax cuts, threats of Trade War, fears of rising inflation, Fed rate hikes, strong earnings…It was indeed an eventful start of the year for investors. In the first part of this quarterly outlook, we review what we consider to be the 10 most relevant financial market stories of the first quarter.

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15 Apr 2018
Perspectives April Publication

Welcome to the 14th edition of Perspectives, where we review the first quarter of the year and share our thoughts for the months to come.

Equity volatility returned with a vengeance in the first quarter of 2018. With twelve moves of plus or minus two percent in the S&P 500 year-to-date compared with a total of zero last year, it seems apparent that more than a few investors have become nervous since the broad index reached an all-time high on
January 26th. While there have been a variety of reasons for global equity investors to start to worry about the sustainability of the “Trump bull market” (increasing trade tensions, Facebook’s woes, the rise in LIBOR, etc.), the sentiment that valuation levels are exaggerated and the growth of passive investing
(with the resulting over-reliance on market-cap weighted indices) are also cited among the culprits behind the recent market correction. In the first part of this edition, we review in details what we consider to be the “Ten stories to remember” from the first three months of the year.

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10 Apr 2018
MENA Q2 Outlook 2018

Please find enclosed our 2Q 2018 House views for Middle East equities.
 
In the first part of this report, we look at the first quarter in the rearview. While most developed equities markets and fixed income have been struggling recently, the first quarter of the year happened to be a very decent one for MENA equities as the S&P Pan Arab gained 7.2% over the period. Best performing markets were Egypt and Saudi.
 
Our flagship Al Mal Mena equities fund had one of its best quarter ever with a gain of +12.4% (net of fees and unlevered). In this report, we review in details the positive and negative contributors to relative performance. We also highlight that since the start of 2017, the fund is up +32.4% against +7.4%, i.e an alpha of 25% (with an ex-post tracking error or 6%).
 
In the second part of this report, we share our enthusiasm about the region as we continue to believe that the best is yet to come. Indeed, we see (at least) 5 reasons to be optimistic about MENA equities:

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14 Mar 2018
Perspectives March Publication

Welcome to the 13th edition of Perspectives. 
 
After 18 months of extraordinary calm on the markets, volatility returned these past few weeks. The primary culprit has been an inflation fear. In the first section, we explain why the correlation between equities and bonds is flipping. This has important implications for portfolio construction as investors need to look for new diversifiers. In light of this, we look at Copper, as the red metal historically performed well in the context of rising inflation. Staying with commodities, we highlight why we believe US shale rise is overshadowing some of the strong factors that play in favor of Crude Oil.

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20 Feb 2018
Perspectives February Publication

Welcome to the 12th edition of Perspectives. 

As mentioned in the January 2018 edition of Perspectives, we expect this year to be more volatile than 2017. While the  first month of the year was characterized by very strong momentum across asset classes and happened to be the best January since 1997, the start of February looks much more different.

In our markets review section, we look at the triggers for the come-back of volatility on  financial markets. We also share the opinion that this looks more like a correction than the start of a bear market.

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18 Jan 2018
MENA Q1 Outlook 2018

At first glance, Middle East equities’ performance in 2017 was disappointing, especially when compared to emerging or even developed markets. The S&P Pan Arab Index returned a mediocre 2% gain last year compared to 34% for the MSCI Emerging Markets Index and 20% for the MSCI Global Equities Index. Not only did MENA equities underperformed the rest of the world, but the volatility was fairly higher than in the rest of the Emerging markets.

These poor risk-adjusted results can be explained by continued uncertainties regarding oil prices, a difficult agenda (Qatar blockage, GCC fragmentation, Lebanon, etc.), concerns over capital flight from Saudi and the fact that GCC GDP growth has been among the weakest in the World last year. With Saudi Arabia in recession and a soft UAE growth, the GCC weighted real GDP growth in 2017 might end up just around 0.5%, far away from the 3.5-4% projected growth for World GDP. There is no doubt that this lackluster growth rate had some impact on regional company earnings and equity multiples.

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07 Jan 2018
Perspectives January Publication

Happy New Year and welcome to the eleventh edition of Perspectives.

By most measures, 2017 will be remembered as an extraordinary year for global risk assets as International equities recorded strong performance with record low volatility. The same cannot be said for our regional Middle East equities which ended a very volatile year with a slim gain.

Ironically, the performance of our flagship MENA equities fund (+19% after fees) is almost in line with the gross returns generated by the S&P 500 and the MSCI World. This demonstrates that an unconstrained strategy focusing on alpha opportunities instead of the direction of the reference benchmark can generate strong absolute returns even in “flattish” markets.

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12 Dec 2017
Perspectives December Publication

Welcome to the tenth edition of Perspectives.

Following strong performances throughout much of 2017, the majority of global markets have consolidated over recent weeks. Importantly, near-term weakness is still playing out in the context of uptrends and a supportive global credit backdrop.

In this edition, we highlight two strong performers of 2017: Frontier Emerging markets and Bitcoin. Cryptocurrencies and the Blockchain have been hot topics throughout most of the year and with bitcoin reaching $15,000 at the time of our writing, we seize the opportunity to revisit the investment thesis as “institutionalization” of cryptocurrencies could become a strong theme in 2018. Frontier emerging markets is for sure closer to our core business - this month, we highlight the reasons of our long-term positive stance on this segment of the market.

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09 Nov 2017
Perspectives November Publication

Welcome to the ninth edition of Perspectives.
 
Many investors were expecting some type of market correction in October, but the only thing that crashed last month was volatility. Despite being historically the most volatile month of the year and even as we commemorated the 30th anniver­sary of the Black Monday stock market crash, October 2017 happened to be the calmest on record for equities. Indeed, the CBOE Volatility Index recorded the lowest monthly average in its history, according to data compiled by Bloomberg. 

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16 Oct 2017
MENA Q4 Outlook 2017

While we continue to see very interesting opportunities across markets in the Middle East, the region remains out of investors’ radar mainly due to the lack of visibility on oil prices and geopolitical concerns. We believe that interest from investors should pick up as the oil market stabilizes and as Saudi Arabia gets closer to inclusion into the MSCI/FTSE Emerging Market indices in the first half of 2018. Our flagship MENA Equity Fund continues to perform well with a year to date performance of +13.86% (as of the 4th of October), outperforming the benchmark by +10.03%.

Allowing women to drive in Saudi Arabia might sound trivial for many, but we do see it as an important milestone towards economic diversification. To our opinion, the Kingdom’s biggest asset is its human capital and having half of the population idled has hampered economic growth.

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05 Oct 2017
Perspectives October Publication

Welcome to the eight edition of Perspectives.

Despite all the political noise and natural disasters, international markets continued their move in a favorable direction in the third quarter as investors cheered rising company earnings and improving global growth. As we discuss in this publication, the market outlook for the rest of the year seems pretty solid as the risks to economic and corporate profit growth seems rather low.

That being said, the current market context of low volatility is not supposed to last forever which means that a more dynamic asset allocation will be required at some point. In the “Portfolio Management section”, we look at the “3-way model”, a simple but highly effective trend following system which could potentially help asset allocators to identify regime change.

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07 Sep 2017
Perspectives September Publication

Welcome to the seventh edition of Perspectives. 

Risk assets have been again defying gravity over the last few weeks as the period of higher volatility which usually characterizes the summer has not been observed this year – at least for now. At the time of our writing, the Nasdaq is close its 52 weeks high, many Emerging markets are breaking out and credit spreads are near their tightest level of the year. Other surprises for investors have been the strength of the euro, the 10-year Treasury bond yields hovering at pre-election levels and…bitcoin reaching $5,000. 

So what’s next? There are signs that the long-awaited correction could still happen. Indeed, triggers for a “risk-off” trade have been piling up recently. Among them: the North Korea missile launch over Japan, the U.S. debt ceiling & budget negotiations, the impacts of hurricane Harvey in Houston (4th largest city in the U.S.), the fading of optimistic sentiment in Europe, the worsening of Brexit negotiation, the roll-over of China’s PPI and toppish PMIs around the world.

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13 Jul 2017
MENA Q3 Outlook 2017

MENA markets are still struggling to catch up with Emerging markets. MENA performance of +3.37% for the first half of 2017 came shy of the+18.43% for Emerging markets. Nonetheless, with Saudi Arabia’s addition to the MSCI emerging markets index watch list and a very strong chance of an upgrade next year, the region should start to attract more attention.

With the recent addition to MSCI watch list, momentum is expected to continue in Saudi as we head into the third quarter. The market should also get more support from increased government spending as we draw closer to year end (capital spending was budgeted 59% higher versus 2016). To a large extent the government is still the main driver of the local economy, and with more reforms coming into effect, their spending program should accelerate.

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09 Jul 2017
Perspectives July & August Publication

Welcome to the sixth edition of Perspectives.

The first half of the year is ending and despite some shaky sessions at the end of June, global equities had their best first half of the last 19 years. Emerging markets were very strong but even the S&P 500 performed well with its best first 6 months’ performance since 2013. Another remarkable fact has been the “Goldilocks” nature of this rally as US equities, long duration US Treasuries and Gold all ended the period with gains between 8% and 9%. Par pure coincidence, our Middle East equities fund generated similar gains in the first half (+9.1% to be precise) despite challenging MENA equities markets. This shows that effective active management can make a difference in our region.
 

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04 Jun 2017
Perspectives June Publication

Ramadan Kareem and welcome to the fifth edition of Perspectives.

Despite the extraordinary political environment in which we find ourselves, the vast majority of global equity markets are reaching new highs as investors begin to appreciate the rate of change improvement in the economy, and importantly, corporate earnings.

During this euphoria, some particular stories are catching the attention of the general public. The 20-year anniversary of Amazon IPO is one of them – this exceptional journey is our “Hot topic” of the month.
 

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04 May 2017
Perspectives May Publication

Perspectives explore investment opportunities within international and MENA markets and across asset classes.

Volatility made a (timid) comeback in April and bond yields continued to surprise on the low side. Nevertheless, it was another solid month for international equity markets as the technology-heavy Nasdaq index crossed the 6,000 mark for the first time ever. Meanwhile, global investors’ focus is progressively shifting towards non-US international markets as Europe and selected Emerging Markets have been collecting impressive amounts of foreign flows recently. In the Middle East, markets have been range-bound but the major news was definitely the decree by King Salman of Saudi Arabia to rescind salary cuts and reinstate bonus payments to thousands of civil servants.

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05 Apr 2017
Cross-assets Quarterly Outlook

Equity risk premium for the markets is still higher than long term average showing absence of bubble in the markets

Forward free cash flow yields on major markets are higher than long term average signaling strong cash generating strength of corporates

Emerging Markets are now trading at a wide discount to US equities

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02 Apr 2017
MENA Q2 Outlook 2017

Perspectives explore investment opportunities within international and MENA markets and across asset classes.

The “Trump” rally which began on November 8th continued in February. After a brief pause at the start of the month, the vast majority of risk assets has resumed their uptrend. Unsurprisingly, most investors, including our clients and ourselves, are wondering if markets are now “priced for perfection”. This is the first topic of this second edition of Perspectives. While a pause might be due, we continue to believe that this bull market has further to go and that any pullback should be seen as a buying opportunity. Most favored assets remain those which should benefit from rising inflation (see the “Investment theme” section).
 

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01 Apr 2017
Perspectives Monthly Publication - April Issue

Perspectives explore investment opportunities within international and MENA markets and across asset classes.
 
In this edition, we share our view that investors might have to look at opportunities outside US equities in the months to come. This is precisely the focus of our monthly investment strategy (“Looking beyond US equities”) and the “Macro round-up” (“Brexit is official!). The “Hot topic” of the month is about the ETF bubble, which creates both risks & opportunities for fund managers. We then make the case for investing into Floating Rate Loans, an attractive asset class in a rising rate environment.

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01 Mar 2017
Perspectives Monthly Publication - March Issue

Perspectives explore investment opportunities within international and MENA markets and across asset classes.

The “Trump” rally which began on November 8th continued in February. After a brief pause at the start of the month, the vast majority of risk assets has resumed their uptrend. Unsurprisingly, most investors, including our clients and ourselves, are wondering if markets are now “priced for perfection”. This is the first topic of this second edition of Perspectives. While a pause might be due, we continue to believe that this bull market has further to go and that any pullback should be seen as a buying opportunity. Most favored assets remain those which should benefit from rising inflation (see the “Investment theme” section).
 

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01 Feb 2017
Perspectives Monthly Publication - February Issue

Perspectives explore investment opportunities within international and MENA markets and across asset classes.

In this first edition, we attempt to answer the question if it is the time to call for a top in the U.S equity market. We also share our view on the rising rates story in Global Fixed Income and highlight which sectors are the most likely to benefit from this new paradigm. 

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