Dubai: The UAE and Qatar with their strong economic fundamentals will stand out among the emerging markets in terms of economic growth and market performance, according to Fidelity Worldwide, a global asset manager.
"The GCC was amongst the stand-out emerging market economies over the last couple of years as global investors became more discriminate in picking the 'winners of tomorrow'. Going forward, the region's economies will be further supported by strong structural growth and increased government spending on infrastructure and social sectors," said Tom Stevenson, investment director - Personal Investing at Fidelity Worldwide Investment.
Global macroeconomic trends and market trends will have a significant impact on the GCC economies and asset price trends, according to Fidelity.
"One of the major global themes is the performance of the US dollar, which is expected to strengthen, particularly against emerging market currencies. As most GCC currencies are pegged to the US dollar, they stand to benefit from the strengthening US dollar in the short to medium term," said Stevenson.
After an extended period of weakness in the decade to 2012, the structural outlook for the US dollar is now brighter.
In particular, all the key factors that were responsible for dollar weakness look to have turned in a more favourable direction.
The sizeable US current account deficit has been reduced largely due to the shale energy boom, which is slashing the country's energy import costs.
The return to economic growth is helping to improve the US budgetary position and the strengthening recovery has also put the US on the verge of becoming the first major economy to effectively begin tightening monetary policy. These three key factors argue for a stronger dollar in the years ahead.
"Shale exploration has implications beyond US borders and could be a material long-term threat to Middle Eastern dominance of the global energy market. Shale deposits are more diversified geographically than traditional oil and gas deposits, which are concentrated in this region," said Stevenson.
"One of the most important effects of Shale on GCC might be reduced demand for oil from the region and other sources of energy. From a global perspective, greater energy independence from the world's largest economy and the possibility of future US energy exports could put downward pressure on global energy prices," commented Tom Stevenson.
"Oil is less vulnerable to a slowdown in Emerging Markets (and particularly China) relative to other commodities, but the shale energy story is a game changer," he said.
Despite the recent slowdown, Fidelity sees selective opportunities in emerging markets. While structural issues relating to these economies and the impact of rising US interest rates and expected to impact capital flows in and out of these economies, Fidelity sees there are selective opportunities in different emerging markets.
The inclusion of the UAE and Qatar Markets in the MSCI is seen as a testament of the intrinsic strength of these markets. "Local markets have performed strongly over the past year due to the improving fundamentals of the economy and the renewed interest of foreign investors. The inclusion of 19 stocks from the UAE and Qatar in the MSCI Emerging Market index this month was an indication of how much this region has developed in a short period of time," Stevenson said..
According to Fidelity, from an investment perspective, many investors in the GCC are faced with challenges relating to asset diversification and the 'search for yield'. Local investors are increasingly putting a greater focus on previously ignored areas such as US equities, equity income and multi-asset portfolios.