ADIB global investment outlook takes an overweight view

In its latest Global Investment Outlook presentation, Abu Dhabi Islamic Bank, ADIB, has suggested that investors should consider taking an "overweight" position on GCC and European equities as well as the Japanese yen.

"Reaching out to our customers and offering them our unique insights into the global investment landscape is central to our mission as trusted financial advisors. We believe in creating a long term relationship with our clients based on providing them with innovative investment solutions that have been carefully evaluated by our team of experts to ensure that they are best in class, in line with our shared values of ethical banking and meet their investment needs," said Mohammed Azab, Head of Private Banking at ADIB.

Commenting on global markets, Kais Dachraoui, Head of Investment Advisory at ADIB said, "Global economic conditions are improving slightly. However, rallies in major markets, especially in the United States, mean that valuations of many global assets have become stretched, and investors should be especially selective at this point in time."

The outlook highlighted the fact that markets have become more resilient to geopolitical risk and investors should remain focused on fundamentals. Expectations are that the US Federal Reserve will be looking to raise interest rates further as the US economy strengthens. But ultra-easy monetary conditions persist globally, with Europe continuing to implement quantitative easing and the Fed, the central banking system of the United States, yet to begin the process of shrinking its balance sheet.

Against this backdrop, ADIB believes investors should take an overweight position on European equities as the continent’s economic conditions improve and the risk of deflation recedes, but a slightly underweight position on US equities because they have become relatively overvalued.

Similarly, the US dollar appears to be overvalued against many currencies, with the Japanese yen looking the most attractive among the greenback’s major currency pairs. The yen is also a good hedge against risk, as it tends to outperform at times of global economic stress.

According to the Islamic bank, GCC equities also deserve a "slightly overweight" allocation because they represent good value compared to other emerging markets, according to ADIB.

A stabilisation in the oil price, has improved the economic outlook of the region, while governments are pressing ahead with structural reforms that will allow for anti-cyclical fiscal policies and economic diversification to continue to be implemented. A smoother transition between business cycles will help reduce uncertainty and promote long-term and strategic investment.

Meanwhile, ADIB sees gold’s traditional negative correlation with real interest rates as broken. In fact, low rates have been detrimental to gold as investors have preferred to increase their holdings of income-generating asset classes, including fixed income. However, gold is a perfect hedge against US dollar weakness, and ADIB is advising clients with high exposure to US dollar-denominated assets to take a position in the precious metal.