DUBAI: In the context of increasing geopolitical tensions in the Middle East, investors in the Gulf Cooperation Council (GCC) are urged to adopt a proactive approach to wealth preservation.
Michael Bollinger, Chief Investment Officer for Global Emerging Markets at UBS, advocates for a strategic shift towards high-grade bonds and international portfolios as effective measures to mitigate risks associated with regional instability.
The recent escalation of hostilities, particularly between Israel and Iran, has heightened market anxiety. Nevertheless, Bollinger maintains that the potential for these conflicts to evolve into a broader regional war remains low.
He emphasises that, as long as oil supply remains uninterrupted, the adverse effects on a globally diversified portfolio will be minimal. The assertion is crucial for GCC investors, who are already significantly exposed to fluctuations in oil markets.
Turbulent environment
To further safeguard their investments, Bollinger recommends diversifying into high-grade bonds—specifically, double and triple-A rated securities with longer durations.
Such bonds can provide stability in times of crisis, ensuring that portfolios are insulated from the volatility that may arise from geopolitical disruptions. Additionally, he highlights gold as a valuable hedge against risk, reinforcing the importance of incorporating alternative assets into investment strategies.
UBS’s analysis reveals that emerging market (EM) bonds typically perform well following the initial cuts in US policy rates. The recent Federal Reserve rate cut in September aligns with this trend, as it has positively influenced EM bond performance.
With expectations of easing global financial conditions and a favourable economic outlook, Bollinger suggests that EM bonds present a compelling opportunity for GCC investors seeking to enhance their portfolios in a turbulent environment.
Furthermore, the approaching US presidential election introduces an additional layer of uncertainty. Bollinger cautions against making impulsive investment decisions based on anticipated electoral outcomes. Instead, he advises a focus on long-term fundamentals, which are unlikely to be significantly disrupted regardless of the election results.
