UBS CIO on how changing geopolitical scenario is impacting investment opportunities

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Updated 24 April 2022

UBS CIO on how changing geopolitical scenario is impacting investment opportunities

UBS CIO on how changing geopolitical scenario is impacting investment opportunities
  • There are important things happening, especially around Vision 2030, says UBS CIO Michael Bolliger

RIYADH: As the world faces significant geopolitical and economic unpredictability, Michael Bolliger, chief investment officer for emerging markets at UBS Global Wealth Management, told Arab News in an exclusive interview how the market responded to this uncertainty cocktail.

The war in Ukraine, according to him, has brought to light the high degree of differentiation among emerging markets. “Higher commodity prices are a challenge to importers like Turkey, Egypt and India, as their external balances worsen,” he said. “However, they are a boon to oil exporters from the Gulf region. This distinction is manifested in the recent divergence of sovereign bond spreads of the importers and exporters.”

Asked about the outlook for the Gulf Cooperation Council, he said this is an interesting point in time for the GCC and certainly for Saudi Arabia as well. “There are important things happening, specifically around Vision 2030. We see various projects now gaining shape and accelerating,” added Bolliger.

Volatile oil prices

Talking about the global context where energy prices are being supported by the global economy coming out of the pandemic, the UBS CIO said he sees the reopening trend accelerating. “By and large, the world has become a lot freer in terms of people’s movements, which means there’s a greater ability for consumers to spend and the service sector specifically to do well,” explained Bolliger.

That, of course, he said benefits the energy sector as well in combination with ongoing and probably growing restrictions on the supply side. 

Bolliger pointed out that people simply didn’t invest in oil facilities for quite a while now. “We saw already before the war in Ukraine that limited supply growth started to influence energy prices,” he said. “And then we had the situation in Ukraine which added another leg to this development, and energy prices saw another move higher.”

He underlined that this movement has become a significant tailwind for this year and probably even for the medium to longer term. “You look at the Saudi stock market and the region more broadly, and you see asset prices obviously starting to reflect the benign environment,” added Bolliger.

When asked about the volatility of oil prices, Bolliger said it’s fair to assume that at least for the next couple of quarters, “we will see higher oil prices than what was assumed in their forecast three or six months ago.”

He remarked that the reason for that evidence from other countries being affected by US sanctions suggests that it may take a long time for the sanctions on Russian oil to disappear.

With the release of strategic reserves in the US and elsewhere, Bolliger believes at some point they may try to fill these reserves again. “This also means that we will see a lesser impact on economic growth right now and hence less of an impact on the demand for energy for the next few quarters.”

While Bolliger expects energy prices to remain volatile — in terms of level, revenues and volumes that Saudi or the GCC can export — he sees these as positive developments locally.

Future outlook

Assessing the performance of financial markets in the world today in light of the pandemic, the volatile oil prices and the unfolding events in Ukraine, Bolliger said there’s a lot on the commodity space as far as Russia is concerned. “People have to deal with the interruptions due to sanctions and the risk of further sanctions. That initially triggered quite a bit of correction and volatility,” he explained.

However, Bolliger pointed out that markets and commodity prices have started to calm down a bit. “We see that, for example, when we look at the energy price developments, it is also related to the release of strategic reserves in the US and elsewhere, which has acted as a stabilizer more recently.”

Against that backdrop, he said people look back at the other market drivers and what they see is the US economy still doing quite well. “We still see relatively solid growth in Europe and elsewhere. China went through a difficult 2021 but will probably now also see brighter prospects for 2022,” explained Bolliger.

Despite all the terrible things happening in Ukraine, the UBS CIO said people realize that the world economy may still do relatively well in 2022, resulting in a rebound of risk assets.

Bolliger thinks that while one would like to focus on the developments in Ukraine, “we should not lose sight of all the other things happening elsewhere.”

HIGHLIGHTS

Michael Bolliger says the war in Ukraine has brought to light the high degree of differentiation among emerging markets.

With the release of strategic reserves in the US and elsewhere, Bolliger believes at some point they may try to fill these reserves again.

While Bolliger expects energy prices to remain volatile — in terms of level, revenues and volumes that Saudi Arabia or the GCC can export — he sees these as positive developments locally.

More to the point, he explained, what is top of mind is the monetary policy outlook with the Fed being obvious that they need to do a lot more to contain inflationary pressure.

“It’s worth remembering that historically whenever the Fed actually started to hike interest rates, the market typically reacted in quite a benign manner, at least for the next few quarters,” Bolliger opined.

Saudi Arabia in focus

With regard to Saudi Arabia, Bolliger said that he was impressed with the fact that despite all the challenges that the Kingdom faced due to the pandemic, it continued on its reform trajectory and its commitment to work toward Vision 2030 and diversify the economy.

“What’s more,” he added, “even during the height of the pandemic, Saudi Arabia did some fiscal tightening measures like the introduction of new taxes, etc.” While this is not a popular thing to do, Bolliger said, it shows that the government is very serious about its medium- to longer-term plans, which is quite encouraging.

Recalling his recent trip to Riyadh, Bolliger said he was impressed to see how much the city had changed. “It just shows you that there are a lot of things happening on the ground.”

With this tailwind and given the discipline to stick to the bigger plan, he said, Saudi appears well to achieve some of the goals outlined in its Vision 2030 at some point.

Despite many challenges, Bolliger added, the Kingdom also seems set to transform its economy away from fossil fuels to other revenue and income streams.

Investment opportunities

Asked about the latest investment opportunities in the region, particularly in Saudi Arabia, Bolliger shared that they like the fixed-income market. “We believe investors typically don’t fully appreciate the credit quality of various issuers in the region,” he added.

Also, on the equity side, he said, this year again looks quite promising for Saudi stocks on an index level as it was the best performing emerging market in 2021. “I think people are quite bullish. Increasingly, it’s worth remembering that Saudi Arabia has become one of the biggest markets in the MSCI Emerging Markets Index,” Bolliger said.

He said Saudi is currently number six in global emerging markets in market capitalization. “And the trend is growing,” he added.

Bolliger recalled a couple of years ago there were quite a few fund managers who said, “Well, I will simply ignore this market because it’s small, and I don’t quite understand it.” But he insisted this is changing now, and it’s actually changing quite rapidly.”


Sharp slowdown in UK business activity rings recession alarm

Sharp slowdown in UK business activity rings recession alarm
Updated 7 sec ago

Sharp slowdown in UK business activity rings recession alarm

Sharp slowdown in UK business activity rings recession alarm
  • Financial markets still expect the BoE to double interest rates to at least 2 percent by the end of the year from 1 percent now

LONDON: Momentum in Britain’s private sector slowed much more than expected this month, adding to recession worries as inflation pressures ratcheted higher, according to a business survey on Tuesday that showed rising pessimism.

S&P Global’s flash Composite Purchasing Managers’ Index (PMI), a monthly gauge of the services and manufacturing industries, fell to 51.8 in May from 57.6 in April, its lowest level since February last year.

The preliminary reading was worse than all forecasts in a Reuters poll of economists, which had pointed to a drop to 57.0.

Sterling fell sharply against the US dollar after the data, and was 0.9 percent down on the day at $1.2480 at 0855 GMT, while short-dated British government bond prices jumped.

“The collapse in the composite PMI in May is the clearest sign yet that demand is faltering in response to the intense squeeze on households’ real disposable incomes,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

Until now, most surveys of British business activity had been fairly robust, despite record-low consumer confidence after inflation hit a 40-year high of 9 percent.

“The latest data indicate a heightened risk of the economy falling into recession as the Bank of England fights to control inflation,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Financial markets still expect the BoE to double interest rates to at least 2 percent by the end of the year from 1 percent now.

The slowdown was most acute in the services sector, where business optimism about the coming 12 months fell to its lowest since May 2020, during the first coronavirus lockdown.

“Companies cite increasingly cautious moods among households and business customers, linked to the cost-of-living crisis, Brexit, rising interest rates, China’s lockdowns and the war in Ukraine,” Williamson said.

Reports of rising costs paid by businesses were more widespread than at any point since the services PMI started in 1996.

Williamson said there were some signs cost pressures may be peaking, and businesses reported resistance from customers to higher prices and a related reduction in demand.

The flash PMI for the manufacturing sector also fell in May to its lowest level since January 2021 at 54.6 , down from 55.8 in April. New export orders declined at the fastest rate since May 2020.

A number of manufacturers cited Brexit trade frictions as the main reason for the drop. 


Saudi IT firm Naseej's shares drop 1.4% on stock market debut

Saudi IT firm Naseej's shares drop 1.4% on stock market debut
Updated 5 min 3 sec ago

Saudi IT firm Naseej's shares drop 1.4% on stock market debut

Saudi IT firm Naseej's shares drop 1.4% on stock market debut

RIYADH: Riyadh-based Naseej for Communication and Information Technology Co.’s shares were down 1.4 percent on its stock market debut on May 24.

The stock price reached SR20.5 ($5.5) per share at noon Riyadh time, as it started trading on Saudi Arabia’s parallel Nomu market.

The company joined the Kingdom’s stock exchange as a direct listing.

Founded in 1989, Naseej is mainly specialized in computer programming, artificial intelligence, virtual reality, and information technology-related activities.


Hilton plans to grow olive oil locally in Saudi Arabia

Hilton plans to grow olive oil locally in Saudi Arabia
Updated 9 min 31 sec ago

Hilton plans to grow olive oil locally in Saudi Arabia

Hilton plans to grow olive oil locally in Saudi Arabia

RIYADH: American hospitality giant Hilton plans to grow olive oil locally in Saudi Arabia, as the hotel chain is encouraged by Saudi Arabia’s efforts to push for local sourcing as part of its strategy to develop non-oil sectors including tourism, a senior executive at the company has revealed. 

While speaking at the Future Hospitality Summit in Riyadh on May 24, Emma Banks, vice president, F&B Strategy & Development EMEA, at Hilton also revealed that the company has signed a deal with Nadec, one of the largest agricultural and food-processing companies in the Middle East, to purchase 200 tons of tomatoes.

She also affirmed Hilton’s commitment to protecting the community in which it operates.

Banks revealed that Hilton has been working hard to reduce carbon emissions by implementing strategic measures in its operations. 


Saudi food chain Raydan narrows losses by 49% in Q1

Saudi food chain Raydan narrows losses by 49% in Q1
Updated 11 min 3 sec ago

Saudi food chain Raydan narrows losses by 49% in Q1

Saudi food chain Raydan narrows losses by 49% in Q1

RIYADH: Raydan Food Co.’s losses narrowed by 49 percent in the first quarter of 2022, helped by higher sales and revenues.

Net losses reached SR4.7 million ($1.3 million) in the first quarter of 2022, from SR9.2 million in the prior-year period, according to bourse filing.

The company attributed the results to an increase in quarter one revenue by 14 percent to SR37,338.

In a separate announcement, Raydan Food announced that accumulated losses reached 48 percent of capital, amounting to almost SR162 million.


Saudi Arabia has its own unique food heritage, says Culinary Art Commission CEO Mayada Badr

Saudi Arabia has its own unique food heritage, says Culinary Art Commission CEO Mayada Badr
Updated 40 min 51 sec ago

Saudi Arabia has its own unique food heritage, says Culinary Art Commission CEO Mayada Badr

Saudi Arabia has its own unique food heritage, says Culinary Art Commission CEO Mayada Badr

RIYADH: Saudi Arabia has its own unique food heritage and there is no necessity to copy from other regions, according to Mayada Badr, CEO of the Culinary Arts Commission. 

“We want to do a lot more in Saudi cuisine. We have our own heritage and we don’t want to copy it. We are using what we have,” she said. 

While speaking at the Future Hospitality Summit in Riyadh on May 24, Badr revealed that several young Saudi nationals are entering the culinary art sector. 

According to Badr, international brands have made their presence felt in the Saudi market along with local brands, which is ultimately resulting in healthy competition in the food and beverage industry. 

Talking about the impact of Vision 2030 on the F&B sector, she added, “With Vision 2030, we Saudis decided to share more than ever. You go to those tiny towns and you feel welcomed. They share food and you get exposed to all sorts of traditional food.”