The global economy is starting to reflate with stronger growth and higher inflation expected in 2017. This coincides with a period in which monetary policy is likely to become less supportive, creating the potential for increased volatility in financial markets. The changing political landscape introduces an additional layer of uncertainty.
We believe four key trends are facing global and Middle East-based institutional investors today: de-globalisation causing volatility; shift towards tax deductions and increased government spending; challenge of capital abundance; and impact of continued structural changes, including demographic, environmental and technological. Organisations will respond in different ways, reflecting their specific beliefs, objectives, governance arrangements and constraints.
Fragmentation
With further political fragmentation and de-globalisation possible, investors should consider stress-testing their portfolios against large equity, bond and currency movements. Reduced levels of liquidity in some markets may exacerbate the magnitude of any sell-offs, providing opportunities for contrarian investors and favouring flexible and dynamic strategies.
Increased protectionism and risk around policy implementation has the potential to create additional volatility in markets. This should provide opportunities for active managers. Political surprises, protectionism and trade tensions also create the potential for substantial currency volatility, so investors should have a clear policy on hedging currency risk.
Shift from monetary to fiscal stimulus
Government policy around the world is shifting towards fiscal stimulus, while policymakers have increasingly recognised the limitations and unintended consequences of further monetary stimulus. The path of inflation over the next few years will be influenced to some extent by the scale and pace of any fiscal stimulus, as well as the actions taken by central banks. Investors with inflation-linked liabilities should consider direct inflation hedges or real assets such as real estate and infrastructure.
Increased uncertainty around monetary policy in an environment of rising inflation is likely to contribute to bond market volatility, creating opportunities for global macro, absolute return bond and unconstrained fixed-income strategies. A more aggressive tightening of monetary policy than is currently priced in may cause some companies to struggle to refinance their debt. This could create opportunities for strategies that are positioned to allocate capital to distressed assets.
Capital abundance
Following eight years of monetary stimulation by central banks, real yields are below zero in much of the developed world, and financial assets have delivered exceptional returns against that background. On a forward-looking basis, we believe that generating annual real returns as high as 3 to 4 per cent will be a challenge over the next three to five years. Portfolios dominated by traditional “beta” (equities, credit and government bonds) now offer a relatively unattractive risk-return trade-off so investors will need to consider less familiar asset classes and more flexible strategies in order to meet return objectives.
Investors should seek returns from a diversified mix of alpha sources and opportunities also remain for high-quality managers specialising in private markets. Less familiar segments of the credit markets (such as asset-backed securities, private lending, trade finance and receivables) also offer opportunities.
In an environment of higher volatility, strategies with the ability to move quickly across markets such as multi-strategy hedge funds or dynamic multi-asset strategies may be helpful in generating returns.
Understanding structural changes
Longer-term structural forces (demographic trends, climate change and technological disruption) will have important implications for investors. In relation to climate change there might be physical risks to real assets or policy risk to any carbon-sensitive assets. Despite uncertainty around US president Donald Trump’s beliefs and US policy trajectory on this issue, climate change remains an issue of global importance and investors should review the extent to which portfolios are exposed to carbon-intensive assets.
The overriding demographic trend is global ageing with the ratio of the dependent population (children and retirees) to the working age population now rising in many countries. This will challenge some countries to a greater extent than others thereby creating economic divergences at a regional level. In the long-term, as developed world baby boomers enter retirement, they will draw down their pools of assets, placing upward pressure on bond yields over time.
Technological disruption will create opportunities, particularly for long/short investors able to identify the winners and losers from technological change. Market cap indexes may be at particular risk from technological disruption given that these hold large weights in the existing incumbents across all sectors.
Many private companies are now choosing to stay private longer than in the past, so investors may need to be willing to allocate to early stage private equity in order to access these sources of future growth.
John Benfield is a partner and regional head of investments at Mercer Wealth
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
Electoral College Victory
Trump has so far secured 295 Electoral College votes, according to the Associated Press, exceeding the 270 needed to win. Only Nevada and Arizona remain to be called, and both swing states are leaning Republican. Trump swept all five remaining swing states, North Carolina, Georgia, Pennsylvania, Michigan and Wisconsin, sealing his path to victory and giving him a strong mandate.
Popular Vote Tally
The count is ongoing, but Trump currently leads with nearly 51 per cent of the popular vote to Harris’s 47.6 per cent. Trump has over 72.2 million votes, while Harris trails with approximately 67.4 million.
Business Insights
As per the document, there are six filing options, including choosing to report on a realisation basis and transitional rules for pre-tax period gains or losses.
SMEs with revenue below Dh3 million per annum can opt for transitional relief until 2026, treating them as having no taxable income.
Larger entities have specific provisions for asset and liability movements, business restructuring, and handling foreign permanent establishments.
Scoreline
Switzerland 5
If you go...
Fly from Dubai or Abu Dhabi to Chiang Mai in Thailand, via Bangkok, before taking a five-hour bus ride across the Laos border to Huay Xai. The land border crossing at Huay Xai is a well-trodden route, meaning entry is swift, though travellers should be aware of visa requirements for both countries.
Flights from Dubai start at Dh4,000 return with Emirates, while Etihad flights from Abu Dhabi start at Dh2,000. Local buses can be booked in Chiang Mai from around Dh50
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.
When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.
How to get there: Emirates currently flies from Dubai to Orlando five times a week.
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
Are non-fungible tokens a currency, asset, or a licensing instrument? Arnab Das, global market strategist EMEA at Invesco, says they are mix of all of three.
You can buy, hold and use NFTs just like US dollars and Bitcoins. “They can appreciate in value and even produce cash flows.”
However, while money is fungible, NFTs are not. “One Bitcoin, dollar, euro or dirham is largely indistinguishable from the next. Nothing ties a dollar bill to a particular owner, for example. Nor does it tie you to to any goods, services or assets you bought with that currency. In contrast, NFTs confer specific ownership,” Mr Das says.
This makes NFTs closer to a piece of intellectual property such as a work of art or licence, as you can claim royalties or profit by exchanging it at a higher value later, Mr Das says. “They could provide a sustainable income stream.”
This income will depend on future demand and use, which makes NFTs difficult to value. “However, there is a credible use case for many forms of intellectual property, notably art, songs, videos,” Mr Das says.
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Tewellah by Nawal Zoghbi is out now.
The Rub of Time: Bellow, Nabokov, Hitchens, Travolta, Trump and Other Pieces 1986-2016
Martin Amis,
Jonathan Cape
Treaty of Friendship between the United Kingdom of Great Britain and Northern Ireland and the United Arab Emirates
The United kingdom of Great Britain and Northern Ireland and the United Arab Emirates; Considering that the United Arab Emirates has assumed full responsibility as a sovereign and independent State; Determined that the long-standing and traditional relations of close friendship and cooperation between their peoples shall continue; Desiring to give expression to this intention in the form of a Treaty Friendship; Have agreed as follows:
ARTICLE 1 The relations between the United Kingdom of Great Britain and Northern Ireland and the United Arab Emirates shall be governed by a spirit of close friendship. In recognition of this, the Contracting Parties, conscious of their common interest in the peace and stability of the region, shall: (a) consult together on matters of mutual concern in time of need; (b) settle all their disputes by peaceful means in conformity with the provisions of the Charter of the United Nations.
ARTICLE 2 The Contracting Parties shall encourage education, scientific and cultural cooperation between the two States in accordance with arrangements to be agreed. Such arrangements shall cover among other things: (a) the promotion of mutual understanding of their respective cultures, civilisations and languages, the promotion of contacts among professional bodies, universities and cultural institutions; (c) the encouragement of technical, scientific and cultural exchanges.
ARTICLE 3 The Contracting Parties shall maintain the close relationship already existing between them in the field of trade and commerce. Representatives of the Contracting Parties shall meet from time to time to consider means by which such relations can be further developed and strengthened, including the possibility of concluding treaties or agreements on matters of mutual concern.
ARTICLE 4 This Treaty shall enter into force on today’s date and shall remain in force for a period of ten years. Unless twelve months before the expiry of the said period of ten years either Contracting Party shall have given notice to the other of its intention to terminate the Treaty, this Treaty shall remain in force thereafter until the expiry of twelve months from the date on which notice of such intention is given.
IN WITNESS WHEREOF the undersigned have signed this Treaty.
DONE in duplicate at Dubai the second day of December 1971AD, corresponding to the fifteenth day of Shawwal 1391H, in the English and Arabic languages, both texts being equally authoritative.
