Trader profile: UAE stock market correction long overdue

Tariq Qaqish, head of asset management at Al Mal Capital, says leveraged investors in the stock market and weak corporate governance are concerns for which he would like to see stronger enforcements by the regulators.

Tariq Qaqish, head of asset management at Al Mal Capital, invested in UAE banks and recorded good returns. Jeffrey Biteng / The National

What is the asset class and geography you are focused on?

The dynamics of investments are similar in my opinion. A successful investment manager will excel in any asset class if he or she follows a strict investment process and digs beyond numbers. To be exposed to different asset classes is definitely a big plus. I started my career in 1992 at Jordan National Bank in the treasury department covering foreign exchange, and then moved to National Bank of Abu Dhabi, where I covered UAE stocks back in 1998 in an over-the-counter market. After the establishment of the Dubai and Abu Dhabi exchanges and the development of the asset management business, I was given the responsibility to manage two of NBAD’s mutual funds covering the UAE stock market. Part of the mandate was to invest in real estate, which was new to me at that time. When I joined Al Mal Capital in 2007, my team and I expanded the company’s product line to cater to our clients’ different investment objectives. Since then I have been in charge of managing equities, fixed income, money markets, private equities and real estate mandates.

What is the outlook for the month ahead?

After gaining more than 100 per cent last year and 60 per cent thisyear, the DFM wrecked short-term leveraged investors and wiped out their gains in only a few sessions. Correction was long overdue, which resulted in stronger-than-anticipated swings. During the next few weeks it will be tough to predict, but it will definitely be volatile. The economic outlook for the UAE is still intact and we don’t see any structural issues. However, leveraged investors in the stock market and weak corporate governance are concerns for which we would like to see stronger enforcements by the regulators. An external factor that could also affect markets is the escalated regional tensions near the Iraq/Syria border as the terrorist group, the Islamic State in Iraq and the Levant (ISIS), emerged as a powerful force. While we don’t see direct risk, we believe foreign investors will take a cautious approach for their allocation. We do believe second-quarter numbers will beat analysts’ expectations and will act as a positive catalyst.

What are the main risks (upside or downside) to that outlook?

The UAE economy remains on track and is actually performing better than expected. We expect more analysts to upgrade their forecast for 2014-15. We expect the UAE GDP to grow by 5 per cent this year and 4.5 per cent next year. Non-oil revenues are showing strong momentum and growing higher than oil revenues, ranging from trade and tourism to financials. We do see some challenges ahead such as higher inflation, geopolitical issues and a sudden shift in global economic outlook.

What was the best investment you were involved with?

I have had several, as our managed funds are beating the respected benchmarks. We invested in Abu Dhabi Islamic Bank because of its continued focus on retail banking, where we believed the margins were likely to be higher because of under-penetration in this segment. At the time of investment, the valuations were very attractive given its relatively high return on equity, decent capital adequacy ratios, solid liquidity position and attractive dividends. We also invested in Emirates NBD at a time when the stock was unduly beaten up for high non-performing loans and the exposure to government-related entities and real estate. We thought the bank was in a good position to capitalise on the recovery in the Dubai real estate sector coupled with a buoyant economy. The key catalyst we identified at the time of investment was a fall in non-performing loan provisioning coupled with an increase in non-interest income because of improved trade flows, which in-turn would boost earnings growth.

What was the worst?

Having a diversified portfolio mitigates risks in a lower correlation environment. When we start building positions in companies we make sure we do that on a gradual basis. One of the worst deals we did this year was to buy Tabreed shares at the wrong time. We looked at Tabreed’s business and were comfortable with its revenue growth, margins and debt ratios, while keeping the shares dilution in mind. Although we believe in the story in the long run, the recent Mubadala conversion of their dividends was taken negatively by investors and affected its share price significantly. We can’t say it is the worst trade until we change our fundamental view, so we hope we are right.

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