CIO Office Weekly Market View- November 19th 2009 Gary Dugan CIP Private Banking Emirates NBD.

Summary: CIO Office Weekly Market View- November 19th 2009

Global markets remain in a nervous mood. We are worried. Last week's US economic data did notmake good reading. After a good run from the equity markets we would suggest taking profits andwaiting for a better day to reinvest. We are more tempted to take profits in the developed markets. Inthe emerging markets the data remains upbeat providing better support for the local markets howeverwe are always concerned that developed and emerging markets will remain highly correlated.ovember 16th, 2009Large companies are outperforming small companies and quality is outperforming. Investorsappear to becoming more discerning about the stocks they are buying. Investors no longer seem to be inthe 'buy anything' mood. Investors are distinguishing between those companies that have good long-termfundamentals and those stocks that had only gone up just because they had previously fallen. Suchoutperformance of the better quality companies again typically marks a flatter performance from themarkets. In the US last week large companies outperformed small companies by over two percentagepoints. Interestingly in the US this year although large companies have outperformed small companies(23.0% return for the S&P500, 17.7% for the Russell 2000) mutual funds that invest in large companieshave underperformed mutual funds that invest in small companies (a year-to-date return for 26.7% forsmall cap funds versus 24.6% for large cap funds). We believe that it is always worth having someexposure to mutual funds that invest in small companies as managers typically find it easier to add valuethrough active stock picking.

We remain somewhat cautious on the near term outlook for the oil price. Commodities were flaton the week. Oil prices came under some downward pressure due to higher than expected inventories,and Saudi Arabia's decision to reduce the cuts in oil supply to International Oil companies. The move bySaudi Arabia is being interpreted as a decision to keep the oil price capped at no higher than $80 for themoment. That the oil price did not sell off more is probably due to the ongoing hurricanes in the Gulf ofMexico that is reining in production of many of the refineries.

We remain positive on emerging market bonds. Emerging market bond spreads narrowed last weekby 10 basis points the first narrowing in three weeks. The JPMorgan Emerging market bond index saw the spread over US Treasuries fall to 318bps. With many investors continuing to seek yielding assets webelieve that emerging market bonds will remain in demand and that the average spread will continue tonarrow offering some hope of capital performance.

News in the region was mixed last week. The UAE registered strong gains in consumer confidence inQ309 according to a recent Nielsen Consumer Confidence Survey, rising by 9 points to 102. However,elsewhere Saudi Arabia saw inflation fall further to 3.5% y/y in October from 4.4% in September,implying that actual activity in the region's largest economy remains very subdued. Inflation in Oman alsofell back and credit growth in Qatar also edged lower, highlighting the breadth of the downturn across theGCC. Last week the announcement that Dubai government repaid a US$1-billion sukuk in conjunctionwith confidence-boosting statements made by Sheikh Mohammed allowed the UAE bourses to beat theweek's downward trend in the Gulf region as a whole. In the coming week the Kuwait Stock Exchangemay come under downward pressure as some listed companies may choose to delay releasing their weak Q3 results. Already yesterday Burgan Bank published Q3 results showing a 91% fall in profits. 2009 Al Bawaba (www.albawaba.com)

2009 Al Bawaba (Albawaba.com)

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