JEDDAH – Gold would underperform this year as a result of an improving global economy, wider confidence in financial markets and the impact of import restrictions recently introduced in India, one of the largest consumers of gold, Alkhabeer Capital, a leading asset management & investment firm based in Saudi Arabia, said in its “Economic Outlook for 2014” report released Tuesday. “We expect oil prices to remain range bound in 2014, as pricing pressures are expected to ease in the latter half of 2014, with global economic recovery gaining steam with increased oil supply from Iran and Libya,” it added. The report expressed a year of cautious optimism, with being bullish on asset growth potential across US and eurozone equities, but underweight on precious metals as global economy recovers. Alkhabeer's outlook for 2014 suggests a cautious degree of optimism for the global macroeconomic environment driven by its continued improvement during 2013. IMF forecasts predict global economic growth to pick up to around 3.6 percent in 2014 from about 2.9 percent in 2013. Alkhabeer believed continued global confidence is dependent on the on-going improvement and strengthening of the US economy, which is poised for faster growth during 2014. Significant challenges however remain and include Europe's on-going debt concerns and vulnerabilities, high unemployment in western economies while emerging markets struggle with structural problems. “For 2014, we believe that US equities still have room for appreciation from the current levels amid accelerating economic growth. We expect corporate sales and earnings growth to continue to beat expectations. As last year, we recommend exposure to cash rich dividend paying firms, mindful of the risks that still plague the global economy. We prefer industrial and consumer sectors that are levered to benefit from the improving economic growth,” Alkhabeer noted. The report also upgraded eurozone equities to overweight underpinned by its improving economy and compelling company valuations. We also believe that equity markets in developed economies will continue to outperform emerging market equities in 2014. Meanwhile, GCC equities remain robust with markets trading at attractive dividend yields however lower oil prices remain a constant risk. GCC markets could witness a significant upside, however, this is at the cost of significant geopolitical risk. US sovereign debt yields surged to record highs towards the end of 2013. With the Fed initiating initial measures to exit its stimulus program, the US fixed income market will be influenced by the Fed's stance in 2014. “We expect US yields at the longer end of the curve to nudge higher. In the eurozone, we anticipate the European Central Bank to remain accommodative resulting in continued compression of Eurozone peripheral sovereign yield spreads.” On currencies, with the Fed having announced that it would be tapering its monetary stimulus and the economy broadly gaining strength, the outlook for the US dollar versus the euro remains positive, the report further said. The euro could see some pressure as the European Central Bank maintains its highly accommodative stance to avert the possibility of a deflation in the eurozone. Meanwhile, the possibility of continued monetary stimulus would continue to pressurize the Yen. We continue to remain positive on the Pound and view the UK as one of the economies most likely to outperform on growth expectations. Alkhabeer remained cautiously positive on European peripheral sovereign yields. US sovereign debt yields surged to record highs towards the end of 2013. With the Fed initiating initial measures to exit its stimulus program, the US fixed income market will be influenced by the Fed's stance in 2014. In terms of outlook, we are Underweight on US sovereign debt and positive on investment grade corporate debt. “We believe that the outlook for European peripheral sovereign yields remains cautiously positive, as the European Central Bank's accommodative stance will support bond markets while fiscal issues pose risks. Alkhabeer expressed greater optimism about global economic growth than we were a year back, though still not willing to go overboard on risk as mindful of the possible headwinds. – SG
