Wary of inflation, UAE investors plan to rejig portfolios

Investors in the UAE are looking for investment opportunities and plan to adjust portfolios to protect their purchasing power against inflation as they along with others globally believe prices will accelerate over the next 12 months, according to a survey report released by a leading Swiss bank.

In the UAE, investors are expecting to feel the impact of inflation, with 46 per cent of respondents in the survey thinking that inflation will accelerate over the next 12 months and 92 per cent of them anticipating that the rise of inflation will have an impact on their portfolio, says UBS’s quarterly Investor Sentiment Survey of individual investors and business owners globally.

While investors in the UAE remain optimistic, their top concern is Covid-19 (66 per cent), closely followed by both climate change (62 per cent) and cyber security (61 per cent).

“To counteract the effects expected to accompany inflation, 35 per cent of UAE investors are showing interest in real-estate, whereas 34 per cent of them are considering sustainable investments, and 32 per cent of them are considering portfolio hedges. Additionally, 83 per cent of UAE investors showed confidence in the stock market and 47 per cent expressed their intentions as result to increase their allocation to stocks in the coming six months,” the UBS report said.

Ali Janoudi, head of Wealth Management Middle East and Africa at UBS, said investors in the UAE are looking for investment opportunities to protect their purchasing power against inflation, with many eyeing real estate and sustainable investments. “They are also optimistic about their own region’s economy. We believe a continued risk-on stance in equities is warranted and sustainable investing is our preferred approach to investing globally.”

Globally, almost half of investors believe inflation will accelerate over the next 12 months and plan to adjust their portfolios accordingly by buying more stocks and real assets.

The survey found that across the world 35 per cent of investors plan to add stocks, 33 per cent plan to add precious metals, 32 per cent plan to add sustainable investments, and 32 per cent are planning to add real estate. While inflation is a concern, global investor optimism remains high about their own region’s economy for the next 12 months (70 per cent) and stock market performance over the next six months (67 per cent).

“Though we expect the recent rise in inflation to ease, the outlook for inflation remains uncertain and therefore building inflation protection into portfolios is an appropriate step for investors to be taking now. This includes investing in commodities, private market infrastructure, and stocks with pricing power, as these areas tend to perform better in an inflationary environment and will help to preserve purchasing power over the long term,” said Tom Naratil, president of UBS Americas and co-president of UBS Global Wealth Management.

Iqbal Khan, president of UBS Europe, Middle East and Africa and co-president of UBS Global Wealth Management, said there will be no return to national lockdowns. “We’ll see inflation recede in the second half, meaning the Fed won’t need to withdraw stimulus. This should be positive for the re-opening of economies, recovery trades and many of the secular growth winners.”

Globally, business owner optimism remained high, but is down slightly by three percentage points, with 77 per cent optimistic about their own business over the next 12 months. As a result, plans to hire are also down with 35 per cent planning to actively hire versus 37 per cent last quarter. Fifty three per cent of business owners plan to keep their workforce the same while 42 per cent plan to invest more in their business versus 47 per cent that plan to invest the same, showing signs of stability.

Business owners see an array of potential benefits in sustainability over the next three years. Sixty-one per cent believe sustainability could generate more revenue, 57 per cent believe it could improve client relationships and 55 per cent believe it could do the same for employee relationships. Still, 51 per cent think it will increase costs.