The UAE’s economy is looking a lot stronger than it was at the beginning of the year. The IMF recently raised its growth projections to 3.4 percent in 2018, up from 1.7 percent in 2017. The oil price has also recovered to above $50 a barrel, which is encouraging for anyone in the Middle East. While this is all good news for investors in the UAE, it doesn’t mean there are no further risks on the horizon.
The UAE economy is very closely tied to the energy industry and to Dubai’s Real Estate Sector. Both industries have had their ups and downs in the last decade. While things are looking up, it’s still a good idea for residents of the UAE to consider diversifying their investments. Investors can diversify by region and by sector or industry. Almost any investment in the UAE is going to be influenced by the Real Estate and Energy market – so diversifying means looking at other regions and other sectors.
How to Diversify
There are several avenues investors can go down to invest around the world. Some brokers offer trading in contracts for difference (CFDs), which are a really simple instrument to gain direct market exposure. The advantage of a CFD account is that one platform gives an investor access to several
asset classes, including shares, forex and commodities. Since the AED is pegged to the US Dollar, investors may want to diversify into currencies like the Euro and Japanese Yen. As far as sectors go, investing in large tech companies is a good way to diversify away from energy and real estate. Companies like Amazon, Google and Tesla are disrupting industries around the world. Their performance is driven by innovation rather than global growth. That’s important for UAE investors, as the local economy is closely linked to global growth and energy demand. Breaking free of those links can mean your investments are safer.
A good way to get diversified exposure to a country or sector is by investing in an ETF, or exchange-traded fund. The following are a few of the ETFs to consider. The Nasdaq 100 ETF, which is traded on the share code QQQ, gives investors exposure to some of the biggest tech companies in the world. It’s a great way to invest in global tech companies in one trade without having to pick and choose individual companies.
For exposure to Japan, the iShares MSCI Japan fund (share code: EWJ) invests in the 370 largest companies in Japan. While the fund is priced in US Dollars, the exposure is in Japanese Yen. That means the fund performs well if Japanese stocks are performing, or if the Yen appreciates. The Japanese currency is often viewed as a safe haven that does well when volatility increases.
The European economy is now recovering well and any investor with a global portfolio should own some European investments. A good ETF with Euro exposure is the SPDR STOXX Europe 50 ETF. This fund invests in the largest 50 companies in Europe, including Nestle, Novartis and HSBC.
Any investor should hedge their bets. And, when doing so they should look at the types of investments they don’t already own, and that differ from what they do own. For UAE investors, the ETFs listed above provide a good mix of sectors and regions that may still perform if the UAE economy hits another bumpy patch.