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A shift in power.

Summary: Investors have had plenty to grapple with of late, and we are not out of the woods yet. Despite many global uncertainties there are some bright spots out there. BME finds out where the pockets of opportunities are..

Gone are the days of the traditional western superpower.

The 21st century superpowers are becoming the emerging markets - not the developed ones - and the US and Europe need to wake up that fact, says Gary Dugan, the Chief Investment Officer at Emirates NBD Private Banking.

"We believe that emerging markets will continue to grow, despite challenging conditions globally," he says.

CHANGING WORLD ORDER

Even if the Euro zone is in recession, emerging markets should continue to see solid economic growth underpinned largely by demographics, including a young, vibrant population that is still growing in the Middle East.

Dugan adds that many challenges lie ahead as the world comes to terms with the ongoing structural change. He describes 2012 as "a year of many imponderables."

"There will be questions for investors surrounding the Euro zone, US efforts to cut its deficit spending, Japan's paying of low interest rates on its debt, against a bleak long-term economic backdrop, the possibility of further phases of the Arab Spring in 2012 and its impact on the GCC markets," he said.

Amid all the uncertainties, Dugan said he is advising clients to clear their minds of the past, and look to the future, "invest in what you know to be true, rather than what you hope to be true.

POCKETS OF OPPORTUNITIES

Investors should look to regions and industries that have strong long-term structural growth prospects, rather than trying to second- guess what is going to happen intheEurozone,hesays. "Growth sectors to look out for include energy, pharmaceuticals and technology, which will offer long-term opportunities for investors." Dugan points out that there is sufficient money in the financial system and sufficient growth in the global economy for the world to get to a better place - at some stage. When that time comes, he says investors should look for buying opportunities in Brazil, China and Russia, as the prospect of lower interest rates and other growth- supportive policies in these countries should ensure positive returns.

Invest in what you know to be true, rather than what you hope to be true

What was a good investment in the past may be an irrelevant investment in the future

AN INVESTORS DREAM?

Dugan believes Mongolia offers good investment opportunities. It is a treasure-chest of geological wealth; copper, coal, gold silver and many others. The Oyu Tolgoi copper and gold mine located near the China-Mongolia border, is one of the world's largest undeveloped copper-gold projects.

Geographically, Mongolia is well placed too. It sits between Russia and China.

Economist predict the Mongolian economy will grow faster than any other in the next decade. In the third quarter of last year, the country's economy surged 21 per cent compared to the same period a year earlier. The International Monetary Fund (IMF) forecasts growth to average 14 per cent between 2012 and 2016.

THE ASSET OF CHOICE

With so much uncertainty bonds are likely to remain the asset class of choice for many, but investors must be selective, Dugan warns. "With yields so low in the 'safe' bond markets of the US, Germany and UK, we would encourage investors to look more to the corporate bonds and emerging market bonds," said Dugan.

"In the GCC, bonds and equities are more highly correlated than before. Local investors should diversify with emerging market bonds and keep cash for opportunistic investment."

He encouraged investors stay to liquid by keeping larger cash, or near- money balances than in the past, but cautioned that cash will remain a place to hide, rather than make significant returns.

"Don't get anchored in your views," he warns. "The world is changing very rapidly. Many companies are challenged by the pace of change around the world, and only some are making the necessary changes to remain competitive. What was a good investment in the past may be an irrelevant investment in the future." nBME

2012 CPI Financial. All rights reserved.

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Publication:Banker Middle East
Date:Feb 20, 2012
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