when markets move - emirates nbd€¦ · exhibit 2: msci all country world index – the ups and...

WEALTH MANAGEMENT

When Markets Move

CIO OfficeInvestment Outlook Q2 2018

1

EMIRATES NBD WEALTH MANAGEMENT INVESTMENT OUTLOOK Q2 2018

Riding the wave of one-way positivemarkets in 2017 and continuedsynchronised positive fundamentalgrowth for most asset classes in Q12018, investors were rattled bysudden volatility. Political bombastand acts of protectionism,particularly from the US, drovemuch of this distress amonginvestors faced with volatile, albeitrelatively flat markets YTD.

As we anticipated, instabilitynotwithstanding, fundamentals acrosscorporates and economies remainsrobustly positive. Long-term,however, this political rhetoric islikely to lead to a more strainedglobal political environment and aweaker USD.

Equity markets continue to fall preyto an unorthodox White House,unpredictable behaviour of theworld’s super powers, and thethreat of a potential trade warbetween the Commanding BaldEagle and the Mighty Red Dragon.

We continue to maintain our viewthat US equity markets shoulddeliver high single digit returns in2018, with Emerging Markets alsoexpected to deliver positive returns.Volatility can be managed throughinvesting in quality stocks anddividend strategies.

Bond markets, as we expected, sawthe end in Q1 2018 to a multi-decade raging bull. The mix ofinflation target maintenance, policynormalisation and quantitativeeasing made for rates volatility. TheFed maintains that rate hikes arewarranted against a backdrop ofincreased positive activity; thecynics, however, would contend thatthis position is merely a tactic toprovide the Fed with tools to stave

off a future recession. Whatever thetactics, support is strong for US 10-year rates at levels of about 2.90%.

Bond markets offer varying degreesof risk/reward returns: we areneutral US high yield and – even inthe face of a more turbulentexperience than developed markets– we are overweight GCC andEmerging Markets. In fact, wemaintain our view that the GCCcontinues to offer attractive yieldson both equities and bonds acrosssovereigns and select corporates.

The GCC is ripe for positive growth.The announcement from MSCI ofthe KSA upgrade from “frontier” to“emerging” is expected to occur inQ2 2018, which should spurpositive equity market activityacross the GCC. Bahrain’s recentdiscovery of its enormous shale gasreserve – the largest in the world –will put Bahrain back in the drivingseat, engage favourable sentimentand encourage growth for theKingdom and its neighbours. TheUAE and the KSA remain thestrongest players, hosting the mostrobust and resilient economies inthe GCC.

On the commodities front, goldremains our choice for an attractivehedging instrument, particularly soin this volatile environment. Oil isexpected to remain resilient and,subject to political stability andproduction levels increasing, weexpect crude to average USD 60/bin 2018.

Volatility is both a gift and a curse.Managed properly, volatility canreap rewards. Caught unawares,volatility is a vulture’s paradise. It isincredibly important to face themarkets with “eyes wide open”.

Tariq Bin Hendi, PhDActing Chief Investment Officer

CIO Statement

Emirates NBD CIO-Office Q2 2018

Volatility is back. With vigour and veracity.

Volatility can be managed

through investingin quality stocks

and dividendstrategies.


2Emirates NBD CIO-Office Q2 2018

Contents

Equity Strategy3Investment Idea – Cyber Security7Investment Idea – The KSA9Investing in a Higher Volatility Regime11Fixed Income Strategy14Investment Idea – European Subordinated Debt19Oil Outlook21Contributors24

3

Q2 Equity Strategy



We maintain our view that in 2018,equity markets will deliver high singledigit returns in developed marketsand low teen returns in Asianmarkets, interspersed with bouts ofhigher volatility, typical of economiclate cycles. The first quarter beganwell for equity markets, yet endedwith most indices and sectors in thered due to a number of factors,including terse political rhetoric andthreats of trade wars.

As we enter the second quarter of2018, we should not consider thefirst quarter as an aberration, butrather a return to normalcy. We thinkthis is a healthy resetting of marketswith forces pulling markets in twodirections. 2017 was unusually calmwith a strong global economy, whichremains a strong support.

Some of the outsized gains we sawin 2017 have not been repeated in2018. Technology which was themain contributor to equity gains in2017, is flat for the year. The lithiumsector which was the best performerin 2018 is amongst the worstperformers in 2018. The shift toelectric vehicles is getting moreprevalent with most largeautomakers abandoning the internalcombustion engine prototype.Demand for lithium or cobalt is notdecreasing, it’s just that the demand

supply dynamics are reaching amore stable equilibrium. AImaintains centre stage in industryand financial services, hence thedemand for high end semiprocessors and the underlyingmaterials remains resilient.

The GCC equity markets, whichwere a laggard in 2017 havereturned almost 10% in Q1 2018,led by the KSA. Saudi equitiesperformance was boosted byhigher oil prices and inclusion inglobal EM indices.

GCC

Eurostoxx

Japan Nikkei

Healthcare

S&P 500

MSCI World

India Sensex

MSCI EM

Technology

Semiconductors

Robotics

Genomics

AI

Lithium

9%

-3%

-5%

-1%

-1%

-1%

-3%

1%

3%

6%

1%

5%

2%

-15%

5%

13%

21%

20%

22%

25%

30%

38%

38%

40%

44%

47%

58%

64%

-20% -10% 0% 10% 20% 30% 40% 50% 60% 70%

2017 Q1 2018

Exhibit 1: Asset Classes Returns: CY 2017 vs Q1 2018

Source: Bloomberg, as of 2 Apr 2018

> Markets end Q1 lower on concerns about trade tariffs

> Maintain conviction on gains in 2018

> Strong earnings growth remains the backbone of equity performance

> Valuations reasonable and at long term averages

> Volatility will continue at normal levels; AI driven trades adding to sharp swings

> Differentiate the tech sectors: Avoid social media, buy cloud services and security

A lookback at Q1 2018

Some of theoutsized gainswe saw in 2017have not been

repeated in 2018

Q2 Equity Strategy



Global growth remains on target,with Asia the front-runner. GDPgrowth for India and China is in the+6% quantum. US economicgrowth has been aided byaccommodative fiscal andmonetary policy which Europeneeds to follow. High earningsgrowth leading to valuationstrending to long-term averages arehelping investors remain confidentabout achieving reasonable returnsfrom the equity markets.

Global earnings growth estimatesfor 2018 are in the low teens. Thestand out is the US which we focuson as the largest contributor toglobal equity performance. US Q1

earnings growth is estimated at 17%and the forward Price to Earningsratio is at 16.6X which is close to thelong term average. Though theeconomic cycle is late stage, theprobability of a recession remainslow. Overall financial conditionshave remained loose, in part due todollar weakness. But heading intothe second quarter, rising wagesand consequently rising inflationpose potential headwinds to USequities should they come instronger than market expectations.The February equity sell-down wastriggered by investors’ concernsover wage pressure in the US afterthe January jobs report. Risingwages negatively impact equity

prices, as they affect margins andtighten the pace of rate increases.

Asia, which is in mid economiccycle, provides the consumer basefor companies to growexponentially. Undemandingvaluations and accommodativemonetary policies, abundantliquidity and stable currencies withcontrolled inflation remain a recipefor continued performance. Asianequities now trade at 13.3X forwardearnings, well below developedmarkets. Whilst a risk premium hasalways been assigned to emergingmarkets, it is time to recognise thegrowing share of these economiesand their stock markets in the world.

380

400

420

440

460

480

500

520

540

560

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

Apr-18

World trade flows at slowest pace since financial crisis

Pound drops to 31-year low against dollar

Donald Trump sworn in as 45th US President

US Jobless claims lowest since March 1973

Eurozone confidence hits post-crisis high

US Job openings hit new high US household

income rose in 2016 to new record

Global inflation hits lowest level since 2009

US 2nd quarter productivity raised to 1.5%

Inflation returns to Japan Japan's growth winning

streak is longest in over a decade

US oil falls into bear market amid worries over supply glut

Eurozone Industrial output rises at fastest rate in nearly 6 years

Eurozone consumer confidence at 16-year high

US companies post profit growth not seen in 5 years

US factory activity hits 13 year high

USD ends with biggest annual decline since 2007

Venezuela crude output hits 28-year low

Consumer borrowing grows at its fastest rate in 16 years

UK inflation rate holds at 5-year high

Moody's raises US GDP forecast to 2.7% for 2018

Global economy to edge up to 3.1% in 2018 - World Bank

Oil hits 2-year highs as US stockpiles drop

Canada’s jobless rate returns to a 4 decade low

Trade tariff talks scare investors

GBP/USD crosses 1.41

Unwind of short vol strategies

Housing starts rise to 10-year high

US Consumer Confidence reaches highest level since 2000

New home sales rise in May as prices hit record level

Annualised Returns as of March 20181 Year 15% 3 Years 9% 5 Years 10% 10 Years 6%

Exhibit 2: MSCI All Country World Index – The Ups and Downs since Jan 2017

Source: MSCI, Bloomberg, Reuters, Financial Times, Press Releases; Bloomberg data, as of 4 Apr 2018

Over a longer period, equity markets generate the strongest return ofany asset class. The MSCI World has returned an annualised 6% over the past 20 years.

5

Q2 Equity Strategy



Monetary policy in developedmarkets is normalising as expected.Higher interest rates were alwayson the anvil in the US as inflationapproached the 2% target andeconomic growth was strong.Europe should follow with sometightening but is still awaiting growthand inflation to reach desired levels.Asian countries follow the oppositepath and whilst controlling inflation,have maintained stable rates.

What had slipped from investorminds was the undertaking of tradetariffs by President Trump. This hasled to tension between China andthe US escalating and the possibilityof lower global growth. In a highlyglobalised world countries areentwined and interdependent oneach other. 60% of Eurostoxxcompanies’ revenue comes fromoverseas. Whilst only 31% for theS&P 500 companies, it is still asignificant number.

The tech sector remains in thelimelight albeit for some of the wrong

reasons at times. Media coverageon: an accident in a Tesla autopiloted car; the Cambridge Analyticascandal around the Facebook users’data; President Trump singling outAmazon as deleterious to retail andreal estate, are but a few examplesof what kept tech companies inheadline news. Social mediacompanies are facing increasedlegislation and control of data aroundprivacy fears. After the recent sell offfrom lofty levels, tech companiesvaluations are very reasonable with

the sector trading at 18.0X forwardearnings and promising twice therevenue growth of the S&P 500 at14% and an earnings growth in thehigh double digits in Q1 2018.

We expect volatility to trade aroundlong term averages i.e. 20 for theVIX Index. The spike of the VIXindex to 50 in February, earlier thisyear caused by the unwinding ofshort volatility strategies may notrecur. However, 2017’s unnaturalcalm looks like an era of the past.

CBOE Volatility Index

05

10152025303540

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

Apr-18


Exhibit 3: The Return of Volatility to Normal Levels

What’s behind the sharp market movements in 2018?

Q2 Equity Strategy



Quality: Companies with strong balance sheets and cash flows,lower leverage and high ROE’s. Many of these companies have highESG (Environmental, Social & Governance) scores, as theirmanagement keeps apace with global trends

Economies with strong growth: i.e. Asia, with a focus on India andHong Kong

Sectors with strong growth: Technology companies that arefocused on robotics, AI, internet retail, blockchain and cloud services

Defence: Both physical and cyber, remains at the forefront withescalating geopolitical concerns and cyber attacks

Dividend strategies: Oil majors have reduced debt and higher oilprices are ensuring strong cash flows

US Banks: Beneficiaries of higher yields

Underweight sectors: Social media. We are also tactically underweight industrials and aerospace till tradenegotiations fall into place.

Exhibit 4: Our positioning across sectors- themes we like

Theme Tactical Strategic

Quality will alwaysoutperform andthe recent sell offhas broughtelevated valuationsback to normallevels. Strongearnings growthremainssupportive ofequity markets.

Source: Emirates NBD CIO Office. as of Apr 2018

Top Innovation Sectors

Consumer, Tech Emerging Markets (Asia)

Food, Auto, Industrials Europe ex UK

GCC

United States

Robotics Japan

Oil E&P Europe

Technology in Industry

Healthcare Genomics, Digital, Wearables, Life Sciences

Financial Services Digital Payments, Cybersecurity

Cloud Services, Robotics, AI, Ecommerce,Blockchain, Semiconductors

KSA Banks, Petchems& HealthcareFinancials, Tech,Defence

Q2 2018: How do we position ourselves in a high volatility regime?

7

Investment Idea: Cyber Security



The prospect of a crippling cyber-attack is real – be it via thedestruction of infrastructure orthrough an attack on a leadingcorporation, bank, or marketplace.Cyber risk is currently viewed asthe greatest risk to the financialsystem by the Basel Committee.This highlights the need for thedevelopment of software andhardware which help detect fraudand provide systems and solutionsfor the protection of data fromcyber risks.

According to a Gartner Survey,17% of the Government CIOsexpect to boost spending in CyberSecurity in 2018. Gartner forecastsworldwide security spending willreach USD 96.3bn in 2018, up 8%from 2017. Organisations arespending more on security as aresult of regulations, shifting buyermind-set, awareness of emergingthreats and the evolution to adigital business strategy.

Security has traditionally been alabour-intensive industry. This haschanged with effectivetechnologies such as facialrecognition software, criminalbehaviour detection algorithms,criteria-based search of recordedvideo, and robots. The integrationof technology will complementexisting manned guarding.

Robots can check vehicles andvisitors, smart cameras canmonitor activity wirelessly such asat construction sites. However, themore we use technology the morewe expose ourselves to the risk ofcyber-attacks. Privacy concernsaround data misuse is alsoconsidered a cyber security threat.

% Respondents

Cloud ServicesCyber / Information security

BI / AnalyticsInfrastructure / data centre

DigitalisationData management

Communications / ConnectivityNetworking, Voice/data communications

Application DevelopmentSoftware development or upgrades

0% 5% 10% 15% 20%

19%17%

16%14%

7%6%6%6%

5%5%

Source: Gartner, as of Oct 2017

Exhibit 5: Spend on Cyber Security in 2018 as a % of IT Budgets –Government CIO’s

2017 2022

CAGR +11%

0

50

100

150

200

250

138

232

Global Cyber Market Size (USDbn)

Source: Markets and Markets Research, as of Jul 2017

Exhibit 6: Global Cyber Security Market Size (USDbn) & Growth (%)

Investment Idea: Cyber Security



> Cisco’s latest security softwareclaims to be more predictive inpreventing threats, byrecognising traffic patterns thatcould signal an attemptedbreach. Cisco has partneredwith Apple to develop a tool thatoffers enterprise cyber securityteams’ greater control over iOSdevices

> Palo Alto Networks has createda firewall that controls how dataflows within and around acompany’s core corporate

infrastructure, allowing acustomer’s security team tocontrol which applicationsconnect and regulate traffic fromother devices

> FireEye provides vector-specificappliance and cloud-basedsolutions

> Gigamon provides visibility andcontrol of data-in-motiontraversing enterprise, federal,and service provider networks(network test equipment)

The opportunities for investing inlisted securities or instruments thatfocus on cyber security are on theincrease. A number of Index LinkedProducts focus solely on this sector.Cyber security ETF’s have returnedover 12% in Q1 outperforming thebroader markets by a wide margin.

Cyber-attacks leave their mark oncompanies and individuals. ThePetya malware affected shippingroutes, ATM machines and transportsystems; the WannaCry virusinfected hospital systems particularlythe UK’s NHS; the Dyn attackbrought down Netflix, Twitter, TheNew York Times and PayPal, amongdozens of other internet services.

Experian, the world’s biggest creditmonitoring service, faces greaterregulatory pressures and informationsecurity risks after the data breach atEquifax, when hackers stolepersonal information including socialsecurity numbers, birth dates andaddresses of over 145mn USconsumers i.e. nearly half the USpopulation.

Estimated Daily Activity

Ransomware

Phishing

New malware

Records lost to hacking

Malicious scans

4,000

33,000

300,000

780,000

80bn

Source: McAfee - Economic Impact of Cybercrime, as of Feb 2018

Exhibit 7: Estimated Daily Cybercrime Activity

Individuals 40%Human health & social work activities 10%Financial & insurance activities 8%Multiple industries 7%Public admin & defense, comp social security 7%Fintech 6% Information & Coms 6%Others 17%

Cyber Crime 82%

Cyber Espionage 12%

Cyber Warfare 4%

Hacktivism 2%

Exhibit 8: Reasons for Cyber Attacks Exhibit 9: Target Distribution - Cyber Attacks

Source: Hackmageddon, as of Jan 2018 Source: Hackmageddon, as of Jan 2018

9

Investment Idea - The KSA



The FTSE included the KSA in itsSecondary Emerging Market Indexin its March review. The MSCIannouncement is expected inJune. The KSA would have aweight of c. 2.7% in the FTSE EMindex and a similar weight in theMSCI EM Index, which would resultin inflows into the KSA equitymarkets of USD 4bn for FTSE andUSD 40bn for the MSCI.

According to FTSE Russell, Saudi isunder-invested by foreign activemanagers and the inclusion will helpchange this especially in the contextof Vision 2030. There are currentlyc. USD 175bn of passive assetstracking the FTSE EM index series.

To facilitate inclusion in the EMIndices, Saudi regulators announcedreforms including easing rules forforeign institutions to invest. Thisremains the biggest catalyst for theKSA market as its c 2.5% share ofthe EM Indices would lead to thecorresponding passive inflowsboosting its equity market.

When listed, Saudi Aramco wouldadd another 2.2% to the KSA’sweight in the EM Index. Other IPOsin the pipeline would add to theweight – Saudi Airlines, SaudiExchange, and Saudi Airports.

The KSA Index trades at 14.2Xforward earnings with a yield of3.5%. This is a slight premium tothe MSCI EM Index which tradesat 12.7X forward earnings. TheKSA was the exception to theglobal rally of 2017 and the

˃ Inclusion in the FTSE EM Index received well by investors

> Foreign Institutional Investors showing interest in the KSA markets

> Socio economic reforms will pave the way for diversification away from oil

> See further upside supported by MSCI EM Index inclusion and stable oil prices

Exhibit 11: Saudi Market Statistics end of Q1 2018

EM Indices Inclusion FTSE Russell MSCI

Decision 28 Mar 18 Jun 18

Inclusion Sep 18 / Mar 19 May 19 / Aug 19

Potential Weight 2.70% 2.40%

Passive Inflows USD 4bn USD 40bn

The KSA Equity Markets: Conviction will Pay Off

Tadawul Index Saudi Banks

95100105110115120125130135140

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18

Source: Bloomberg, as of 29 Mar 2018; Rebased to 100

Exhibit 10: 1 Year Performance of Tadawul Index & Saudi Bank Index

KSA Market Statistics

Saudi Index YTD 7.7%

Market cap of KSA USD 490.3bn

Price/ Earnings (2018E) 14.2X

Dividend Yield 3.5%

Daily Traded Volumes USD 1.1bn

Qualified Foreign Investor Ownership 1.8%

Source: Bloomberg as of 31 Mar 2018



Investment Idea - The KSA

Tadawul index ended 2017 flat,hence provides upside asvaluations are not stretched.

The KSA has 21% of global oilreserves and 10% of global oilproduction along with the 4th largestnatural gas reserves. Its populationof 30mn, two thirds below the age of30, provide the demographics forincreasing consumption a strongworkforce to grow the economy.Social reforms to empower Saudinationals, particularly youth andwomen will pay off with increasedworkforce participation.

“Saudi Arabia’s Vision 2030” wasadopted as an approach and aroadmap for economic anddevelopmental action in the KSA.The vision encompasses—in anumber of domains—strategicobjectives, targets, outcome-oriented indicators, andcommitments that are to beachieved by the public, private, andnon-profit sectors.

The goal is to spur multiple differentnew industries within the countryand diversify the economy anddependence of the KSA away fromoil exports. Business and industrialzones are in progress, such as theNEOM project, which will focus onindustries including energy andwater, biotechnology, food,advanced manufacturing andentertainment.

We are overweight the bankingsector in the KSA on a higher ratesoutlook and the petrochemicalsector on stable and improving oilprices. These sectors also havelarger trading volumes and potentialinclusion of a number of stocks. Wehighlight Al Rajhi Bank, NCB,Samba, Bank Saudi Fransi, SABIC,Yansab and APPC as potentialentrants to the EM indices.

Overweight sectors> Banking: Liquidity issues are

improving. Loan to deposit ratioshave now stabilised. Dividendpayout is being maintained.Higher rates are positive for NetInterest Margins. Saudi bankshave c.60% low cost CASAdeposits hence higher local ratesare positive for NIMs

> Petrochemicals: The rally couldcontinue as with oil above USD60, product prices will move inline. Companies like SABICwhich is a global chemical leaderis growing both organically andinorganically and diversifying outof the KSA

> Healthcare: Greater use of privatesector healthcare is stronglysupported by the government

Neutral sectors> Consumer: The rally in oil prices

is finally flowing through tospending

> Telecom: Dividend payout hasbeen maintained, thoughearnings growth is muted.Increasing use of data andyoung demographics will drivecash flows

Underweight sectors> Contractors: Facing receivable

issues with margins contracting



Investing in a Higher Volatility Regime

˃ Higher asset volatility a late-cycle feature

˃ Growth scares hit risk assets harder with fading policy support

˃ Active portfolio management important amidst rising uncertainty

˃ EM bonds and low-volatility stocks resilient under turbulent market regimes

US Equity Volatility (LHA) US Treasury Volatility

5

15

25

35

45

55

1989 1993 1997 2001 2005 2009 2013 2017 40

80

120

160

200

240

Exhibit 12: Equity & bond volatility hit all-time lows in late 2017

Source: Bloomberg, Emirates NBD CIO Office, as of Mar 2018

Goldman Sachs Bull Bear Index S&P100 Vol above 1 Standard Dev

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

Exhibit 13: Goldman Sachs Bull Bear Index and instances ofvolatility spikes on S&P100 Index


The Goldilocks backdrop ofaccelerating growth and tameinflation which persistedthroughout 2017 drove a strongbull market in risk assets, withvolatility tumbling across assetclasses. In particular, the market-implied volatility for US equitiesand US Treasuries recorded all-time lows (Exhibit 12), lullinginvestors into a complacent view ofthe world of investments. It ishuman nature to extrapolate pasttendencies into the future, hencewhy not think that one couldreplicate this performance on theS&P500 and high-quality USBonds? At the end of 2017volatility was lingering belowhistorical norms and themacroeconomic environmentseemed to be indeed supportive.

Reality dawned on investors inearly February this year, with abrutal sell-off in equities precededby relentlessly rising long-dated USgovernment yields: the awakeningof volatility in the Treasury marketin late 2017 driven by inflation fearswas a harbinger of harsher times tocome for equities.

One may wonder what caused thechange in the volatility regime. Thevolatility of asset returns can beloosely defined as the variability oftheir returns; the higher theirvariability, the more uncertain theexpected returns. During 2017global equities did not incur a fallgreater than 2.5% on any day,reflecting supportive growth andinflation dynamics, and lowvariability in macroeconomicforecasts. Investors have to accept

that 2018 would see economicgrowth and plentiful liquidity peak,due to the maturing cycle andinflation rearing its head again.

Higher volatility in risk assets tendsto be a late-cycle feature, and tocome about more frequently whenthe economy is in a downturn(Exhibit 13). Exhibit 13 depicts aproxy for the US business cycle(the Goldman Sachs Bull BearIndex), and the instances of when

US equity volatility has spiked.Equity volatility started to risesignificantly a couple of yearsbefore the end of the cycle, both inthe late ‘80s and late ‘90s, as wellas in early 2008, after the end ofthe cycle a year earlier. Repeatedbouts of volatility continued as theUS economy plunged intorecession. The early-cycle volatilityafter the Great Financial Crisisreflects the aftershocks of the crisisand occurs less frequently.




S&P100 Volatility Index (LHA)US Yield Curve (Inverted, Shifted 2 Years Ahead)

-6

-4

-2

0

2

0

15

30

45

1984 1988 1992 1996 2000 2004 2008 2012 2016

Exhibit 14: Flattening US yield curve points to higher volatilityregime


Since the US cycle is quite mature,it is not unreasonable to think thatmarkets are currently shifting to ahigher volatility regime. The USyield curve is a good indicator ofthe future trend to be expected inequity volatility. A flattening of theyield curve, when longer-datedgovernment yields drop faster orrise slower than shorter-datedyields, points to a future slowdownin the economy. The protractedflattening of the curve eventuallytranslates in equity volatilityspiking. Exhibit 14 highlights thatvolatility is going to be persistentlyhigher in the following two years(rising blue line).

The business cycle ageing andliquidity is being withdrawn bycentral banks as inflation graduallyrises. With fading monetarysupport, risk assets tend tobecome more sensitive tonegative economic surprises,which in turn occur morefrequently as the business cycleages. On a longer term basis, itshould also be taken into accountthat unconventional monetarysupport, Quantitative Easing, isbeing unwound and will eventuallydrive bond yields higher, exertingfurther pressure on equities andcorporate credit. Overall, it seemsthat for the medium to long termdiverse factors are likely tocontribute to the lifting of assetvolatility, which should have justentered a new regime.

Yet, on a shorter time frame, theoutlook looks brighter. The earningsseason, already underway in theUS, is going to be a positivecatalyst, with bottom line growthforecast to be in the mid-teens.Equities and credit alreadyunderperformed earnings in Q1,closing the quarter in the red.Statistically it would be

unprecedented if they did it for asecond consecutive quarter, unlessthe economy were headed for arecession, which is unlikelyconsidering that tax cuts have veryrecently been approved.

Also, US inflation should now rise inline with expectations, rather thansurprise positively as it has donesince late January. This should inturn help volatility on rates subsideand drive a positive correlationbetween gradually increasing bondyields and equities.

Financial markets are not pointingto further volatility spikes in the short

term. EM assets have held up betterthan in early 2016, when concernsabout a hard landing in China putpressure on markets globally.Global high-yielding bonds haveremained tight by historicalstandards, and safe-haven assets,gold and the Japanese yen, havefailed to spike higher.

Under the reasonable assumptionthat volatility will remain structurallyhigher than in the past, one maywonder if, within risk assets, somesub-asset classes can be moreresilient than others. We think this tobe the case for high-quality stocksand EM hard-currency bonds.

The earningsseason, already

underway in the US,is going to be apositive catalyst,with bottom line

growth forecast tobe in the mid-teens.




High quality stocks, defined byabove-market return on equity andquality of earnings, tend tooutperform benchmark indices inhigh-volatility regimes, as illustratedin Exhibit 15. Investors, under moreturbulent times, will have a biastowards stocks with more robustfinancials and lower leverage.

The case for EM bonds is lessstraightforward, but equallycompelling. Drawdowns of EMbonds have tended to shrink asfundamentals of EM countries havecontinued to improve since the 1998Asian crisis (Exhibit 16). Even in2013-14, when EM equities wentthrough a bear market ascommodities collapsed, thedrawdown on EM bonds wasrelatively contained (-10.3%).

We hold the view that, as the EMeconomies catch up with their DMpeers and EM assets graduallylessen their beta to global assets,EM bonds will prove increasinglyresilient to higher global volatility.

S&P100 Volatility Index (LHA)US High Quality Stocks Excess Return (YoY%)

-0.1

0.0

0.1

0.2

0.3

0

10

20

30

40

50

60

70

1996 2000 2004 2008 2012 2016

Exhibit 15: Excess return of US high-quality stocks versusS&P100 volatility


-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

1993 1997 2001 2005 2009 2013 2017

Exhibit 16: Historical drawdown by year of EM hard-currencybonds




Q2 Fixed Income Strategy

˃ Constructive outlook on the fixed income asset class

˃ Policy normalisation in full force – two more hikes are priced in

˃ Emerging Markets debt – a bumpy ride ahead, stay invested

˃ GCC bond markets offer value proposition for the discerning income seekers

So far this year, the fixed incomeasset class has weathered shiftingmacro headwinds. The return ofvolatility has placed tremendouspressure, particularly for creditmarkets across high yield andemerging markets bonds. That said,the emerging market local-currencybonds have outperformed US highyield bonds. The benchmark “EMlocal currency bonds” has returned

nearly 2.5% year-to-date, while highyield delivered negative returnsYTD across the board. Moreover,the yield differential between local-currency and hard-currency bondsin EM debt has convergedsignificantly to the tightest levelsversus the long term averages.

Starting the year with a strongpayrolls report and a minor uptick in

hourly earnings led to the euphoriaand reassessment of higher bondyields. Then came the cause for theflight to safety bid with the tech sell-off and global trade concerns andstructural issues at the forefront –the fiscal and trade imbalances. Weremain constructive on USTreasuries for long-term positioningand see strong support towards the2.90% level.

Exhibit 17: Fixed income asset class performance


Bonds Spread 1mth 3mths 12mths YTD

Global Developed Sovereign (Loc) 1.22% 0 0.93% 0.88% 2.26% 0.48%

Global Aggr Corporate (Loc) 2.81% 99 0.54% -0.85% 2.47% -1.21%

Global High Yield 5.60% 346 -0.07% -0.87% 4.39% -0.31%

USD Emerging Market 5.04% 239 0.30% -1.35% 2.98% -1.35%

US Government 2.58% – 0.82% -0.61% 0.04% -1.35%

USD Corporate Investment Grade 3.76% 108 0.73% -1.62% 2.38% -2.25%

USD Corporate High Yield 6.22% 350 -0.05% -1.05% 3.77% -0.45%

BBG EUR Aggr Corp (Loc) 1.08% 86 0.22% -0.53% 0.83% -0.63%

Euro Corporate High Yield 1.08% 86 0.20% -0.50% 0.80% -0.60%

USD EM Sovereign 5.52% 279 0.67% -1.60% 3.20% -1.64%

USD EM Corporate 5.12% 255 -0.20% -1.43% 3.33% -1.21%

Local EM Sovereign 4.81% 48 0.13% 1.46% 10.22% 2.31%

CurrentYield




The dilemma on global trade warssparked by President Trump isweighing on sentiment across theglobal credit markets. EM creditspreads have had a meaningfulcorrection year to date with spreadswidening. We estimate that the USdollar will end the year weaker, asprotectionism rhetoric from PresidentTrump should eventually lower itsvalue. EM currencies have held theirground in the recent turmoil. TheMSCI International EM CurrencyIndex has barely budged from an all-time high reached early this year,reflecting the strong economicfundamentals of EM nations.

The message delivered by the newFed Chair at the March policymeeting was to an extent reassuringfor 2018. Growth and employmentwere revised higher, with inflationforecasts little changed. The numberof rate hikes planned for this yearwas unchanged, although the policyoutlook for 2019 and 2020 turnedmore hawkish. MSCI EM Currency Index US Dollar Index

75

80

85

90

95

100

105

1400

1450

1500

1550

1600

1650

1700

1750

2013 2014 2015 2016 2017 2018

Source: Bloomberg as of 10 Apr 2018

Exhibit 19: EM currencies have staged a strong comeback

Core PCE Core CPI Federal Reserve Target

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17

% C

hang

e (Y

oY, s

a)


Exhibit 20: Fed’s preferred inflation gauge is under its target of 2%

Exhibit 18: Our preferred positioning

Global Investment Grade Overweight Neutral

US High Yield Neutral Neutral

Emerging Markets Overweight Overweight

GCC Bond/Sukuk Overweight Overweight

Source: Emirates NBD CIO Office as of 10 Apr 2018

Tactical

Positioning

Strategic

EM currencies haveheld their ground inthe recent turmoil




There is evidence that demonstratesthe surge in Libor rates to theirhighest levels seen since 2008; themain reason behind their surge isthe steep increase in the supply ofTreasuries and expectations for afaster pace of the fed fund ratestrajectory. The repatriation of cashfollowing the approval of the US taxreform also played a role in therecent Libor trends. As thesetechnical factors fade in the comingmonths, Libor should graduallystabilise at lower levels. Higher ratesare not necessarily reflective offunding stress.

Macro fundamentals in vogueGlobal monetary policies arecatching up with global growth. TheFed has embarked on a series ofpolicy rate increases for this year aswell as for 2019. The ECB has alsohighlighted its tapering program andis expected to withdraw the ongoingstimulus completely by Septemberthis year; however, we do notexpect any rate increases this year.The Bank of England on the otherhand will go ahead with theirtightening cycle.

Our key risks for our 2018 strategyhave now slightly drifted frompolicy normalisation towardsescalating tensions on global tradeand protectionism.

The global PMI has also started toshow signs of rolling over afternearly two years. Themanufacturing activity slowed in 19of 28 economies tracked byJPMorgan and Markit in March,particularly in the euro area. InFebruary, only 10 countries hadsequential slowdowns. The currentgrowth phase is unsustainablelong-term and investors need toposition accordingly.

US Average Hourly Earnings

-0.3%

-0.2%

-0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


Exhibit 21: Wage growth is not sufficient to warrant higher rates

Libor Fixings Curve 04/09/18Shift in Libor over a 12 mth period

Libor Fixings Curve 04/09/17

91 100

118

104

91

0

20

40

60

80

100

120

140

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1 mth 2 mth 3 mth 6 mth 1 yr


Exhibit 22: Shift in the USD Libor curve – rational or irrational?

35

40

45

50

55

60

2000

2001

2002

2003

2004

2006

2007

2008

2009

2010

2011

2013

2014

2015

2016

2017

Source: Source: Bloomberg as of 10 Apr 2018

Exhibit 23: Global Business Conditions (PMI) rolling over




Alpha and not BetaVolatility will remain and is expectedto put credit markets under pressure.With the ongoing uncertainties, werecommend investors focus onfundamentals and businesses thathave sound business models andstrong governance frameworks.

Do not chase yields: There issubstantial supply of good creditwithin the bond markets. Investorsshould avoid being complacent whilepositioning and focus on value andincome over growth.

Duration positioning The shape of the yield curve shouldprovide some direction for investingin the bond markets. We foreseefurther flattening as the short termrates adjust and normalise with theongoing Fed’s tightening cycle. Thediminishing term premium on theyield curve is counter-intuitive. Weprefer the 5 to 7 year on duration.

DM Bonds: DM government bondyields YTD have edged up close tokey support levels and have beencontained with ongoing globalmacro headwinds. The flight tosafety bid has led to capped yields.The US faces structural challengeswith a burgeoning fiscal deficit postthe recent fiscal stimulus, in a lateeconomic cycle.

Emerging Markets Debt Our conviction on EM debt remainsintact. Buoyant and strong macrofundamentals and prudentmonetary and fiscal policiesunderpin our conviction. Corporatebalance sheets demonstrate lowdefault rates and a stable ratingsoutlook across EM credits; thisshould counter any near-termvolatility or market stress. EMgrowth rates have been divergingfrom their DM counterparts andcontinue to dominate about two-

USYC2Y10 Index USYC5Y30 Index

0

50

100

150

200

250

300

350

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 S

prea

d (b

p)


Exhibit 24: US flattening yield curve in play driven by the outlookfor policy tightening and rising short term rates

thirds of global growth. EM externalbalances have also shown signs ofconsistent improvement.

One of the main investor concernssurrounding EM debt has been the

FX volatility; the volatility hassubsided substantially and EMcurrencies have demonstratedrobustness.

MO

VE

Inde

x

40 50 60 70 80 90

100 110 120

2013 2014 2015 2016 2017


Exhibit 26: US Treasuries options volatility estimate has remainedsubdued and not extreme as compared to theprevious spikes

US

D b

n 113.1 107.7

55.567.4

85.1

146.7134.2

112.2

191.1169.0

154.3 153.9

189.5

020 40 60 80

100 120 140 160 180 200

2015 Q1

2015 Q2

2015 Q3

2015 Q4

2016 Q1

2016 Q2

2016 Q3

2016 Q4

2017 Q1

2017 Q2

2017 Q3

2017 Q4

2018 Q1

Source: Bond radar, Emirates NBD CIO Office as of 08 Apr 2018

Exhibit 25: Total EM primary bond sales surge with stronginvestor appetite

Merrill Option Volatility Estimate (MOVE Index): is a yield curveweighted index of the normalised implied volatility on 1-month Treasuryoptions. It is the weighted average of volatilities on the two-year andfive year UST’s.




The insatiable search for yieldcontinues to attract capital flows toemerging markets bonds.

Q1 Primary issuance: Asia > Asian credit spreads spiked to

the highest levels seen in sixmonths during March

> China took 68% of the marketissuance, with a strongperformance from the Chinesecorporate sector that achievedUSD 14.02bn volume in March

Q1 Primary issuance: CEEMEA> The region continues to be

pushed along by large sovereignissues

> Q1 2018 managed to beat Q12017’s former record of USD61.84bn

Q1 Primary issuance: LATAM> LatAm issuance dropped to a

low of USD 4.14bn in March

> Both Brazil and Argentina sawspreads over Treasuries widenby roughly 20bps over the month

> Chile’s central bank, meanwhile,revised up its growth forecastrange by 0.5% to 3-4% for 2018

Q1 Primary issuance: GCC> Surge in Sukuk supply during Q1

> GCC bond sales for Q1 lower ascompared to the same period in2017

> GCC sovereigns to take the leadin terms of issue size followed byBanks and corporates forrefinancing upcoming debtobligations

US

D b

n

Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018

61.9 61.0

43.734.9

64.3

0

20

40

60

80

Source: Bond radar and Emirates NBD CIO Office as of 08 Apr 2018

Exhibit 28: CEEMEA strong supply during Q1, Q2 issuance to slow

US

D b

n

83.8

78.2

76.0

85.2

80.4

70

72

74

76

78

80

82

84

86

Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018


Exhibit 27: EM Asian bond issuance keeping pace. China dominates

US

D b

n

Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018

45.6

29.834.5 33.8

44.9

0

10

20

30

40

50


Exhibit 29: LatAm bond sales have kept pace and still offercompelling risk-reward opportunities

US

D b

n

Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018

29.0

21.00 19.317.7 18.9

0

5

10

15

20

25

30

35


Exhibit 30: GCC Issuance – Strong investor demand and plenty ofvalue to be explored



Investment Idea – European Subordinated Debt

The Eurozone economy continuedits robust performance in Q1 2018,driven by a resilient domesticdemand, an accommodativemonetary policy, a recovering labourmarket and healthy externaldemand. In Western Europe,growth is running at about 2% onaverage, with some economiesseeing appreciably higher rates.

Eurozone’s 2018 economic outlooklooks solid on the back of animproving labour market andaccommodative financial conditionsthat should continue to supportgrowth. As per the ECB, annual realGDP growth is expected to averagecirca 1.8% in 2018 and 2019.

Inflationary pressures are beginningto pick up. In the euro area, coreinflation has gradually increasedover the years as exhibited below.Greater inflationary pressures arevisible mainly in wages ineconomies where unemploymentrates have returned to pre-crisislevels. Inflation is expected to reach1.5% in 2019.

At the height of the Eurozonefinancial crisis in 2012, ECB chiefMario Draghi promised to do"whatever it takes" to prevent thebloc’s economy from collapsing.The central bank has sinceunleashed experimental andextreme measures, which includeslashing interest rates below zeroand pumping trillions of euros intothe economy.

Europe Western Europe Emerging & Developing Europe

2010 2011 2012 2013 2014 2015 2016 2017 2018-1%

0%

1%

2%

3%

4%

5%

6%

7%

Source: IMF. as of Mar 2018

Exhibit 31: Real GDP Growth

-1

0

1

2

3

4

5

Jan-2007

Jan-2008

Jan-2009

Jan-2010

Jan-2011

Jan-2012

Jan-2013

Jan-2014

Jan-2015

Jan-2016

Jan-2017

Jan-2018

Source: Bloomberg & ECB (Outlook 2018)

Exhibit 32: Eurozone Inflation

-0.5%

-0.2%

0.0%

0.2%

0.5%

0.8%

1.0%

Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017

Source: Bloomberg, as of Mar 2018

Exhibit 33: ECB Main Refinancing Operations Announcement Rate

˃ European Financials have seen improving fundamentals and recapitalisation of balance sheets

˃ Strong technicals and stretched valuations will drive spreads tighter in 2018



Investment Idea – European Subordinated Debt

The ECB’s significant move toreduce its monetary stimulus won’thave much impact as policy rateswere unchanged and are set toremain in place.

After almost a decade, Europeanfinancials have shown signs ofimproved fundamentals with wellcapitalised balance sheets. We findopportunities in the European bankshybrid debt segment within thecapital structure.

European Senior Financial CDS European Sub Financial CDS

0

100

200

300

400

500

600

700

Sep-2011 Sep-2012 Sep-2013 Sep-2014 Sep-2015 Sep-2016 Sep-2017

Source: Bloomberg, as of Mar 2018

Exhibit 34: European Financial CDS (bps)

> Change in investor attitude on the back of significant strengthening of balance sheets, higher capital and liquidityratios and improving asset quality

> Average non-performing loans ratio has seen a balanced decline over the past few years and is under 4%

> The banking sector’s return on equity has ranged between low to mid-single digits and has considerablyimproved over the last couple of years as legacy costs, such as misconduct, litigation and restructuringexpenses have eased

> The Common Equity Tier 1 (CET1) ratio for major European banks has more than doubled, from just 7% in2006 to just over 14%

> We prefer AT1 and Tier 2 debt securities where European banks are either approaching or are already at end-point minimum CET1 requirements

Additional Tier 1Securities

Loss AbsorptionMechanismTrigger

Mechanical Discretionary

Book-Value Market-Value

Conversion Write-Down

Loss Absorption Mechanism is driven by investor choice – some fixed income investors are not able to invest in contingent equity – hence preferring the write-down model – which appears to entail greater loss severity.

Discretionary Triggers such as a regulator’s call of point of non-viability present challenges for investors.

Mechanical Trigger Levels are driven by regulatory requirements.

Market-Value Triggers have not been used to date.



Oil Outlook

The balance of risks in oil markets isincreasingly weighted to the upsideas a confluence of fundamental andpolicy factors have added upwardmomentum to prices. In mid-April,Brent futures were above USD 70/b,their highest level since the end of2014, and were more than 25%higher than they were at the sametime in April 2017. Over theremainder of 2018 we see severalmajor risks ahead that could keep oilprices in this elevated range but allthe while raising the prospect of aslide further out.

OPEC has carried over its strongcompliance to the production cuts itagreed with partners at the end of2016. Average compliance in 2017was 98.8% but it has jumped to morethan 150% in the first three monthsof 2018 according to Reuters. SaudiArabia has continued to do much ofthe heavy lifting in achieving betterthan expected compliance but in factall OPEC producers that are party tothe deal have achieved a higherlevel of compliance this year. TheUAE has been one of the mostimproved members, achieving acompliance rate of 124% on averagein Q1 compared with around just41% in 2017 as a whole.Compliance in Iraq is higher than itwas in 2017 but has been steadilydeclining since hitting a peak inNovember when production wasdisrupted by civil conflict in thecountry. Venezuela has actuallyachieved one of the highest levels ofcompliance but for involuntaryreasons (see Exhibit 35).

We had expected that Middle Eastproducers would actually increaseproduction in 2018 to takeadvantage of the improvement in oilprices but Q1 suggests the opposite.If MENA producers maintain theircurrent levels of oil production ourprojections for global oil market

balances would push deeper intodeficit, implying a bigger draw oninventories and more support forprices around current levels. Butthere is still most of 2018 to go,leaving plenty of time for changes inregional oil production. The strongstart to the year actually givesproducers space to ease back onthe cuts if the current price levelsrisk eroding marginal demand orother producers face disruptions.

Outside of the region, the biggestfundamental risk to OPECproduction levels stems fromVenezuela. Oil output there fell 476kb/d below year ago levels in Q1according to Reuters, anacceleration of the alreadyprecipitous decline seen last year.The IEA estimates that total capacityin the country could fall to as low as1.38mn b/d by the end of 2018, thelowest level since the 1940s.Deteriorating economic conditionsand defaults from state enterprisesacross economic sectors have leftPDVSA, the state oil company,lacking funds to halt the decline inoutput or pay foreign partners. Withthe pace of decline accelerating andno viable means to redress it, weexpect a decline of around 500k b/don average this year compared witha 280k b/d drop in 2017.

Sticking to supply side risksproduction in the US could end updisappointing owing to logisticalchoke points. The EIA projectsgrowth in US crude oil supply of1.37m b/d this year, effectively thefastest growth on record. Drillingproductivity has continued toimprove during the slump in oilprices, allowing fast levels of growthat a lower overall rig count. But therest of the oil infrastructure in the UShas not caught up. Pipelines linkingproduction centres to exportterminals are at already close tocapacity and expansions are onlyexpected in 2019. The US also lacksmultiple ports at which the largest oiltankers can take on crude,constraining the egress of crudefrom production regions such as thePermian basin in Texas.

Average compliance 2018Average compliance 2017

Eq. GuineaVenezuela

AngolaQatar

AlgeriaIranUAE

Saudi ArabiaKuwait

IraqEcuador

GabonTotal crude

-0% 100% 200% 300% 400% 500% 600%

572109509

140228

107160

55145

8812941

124120124

100105

5886

536941

22 99152

Soure: Eikon, Emirates NBD Research, as of Mar 2018

Exhibit 35: MENA Compliance

The UAE has been one of

the most improvedmembers, achievinga compliance rate

of 124%



Oil Outlook

Producers in Texas are currentlyfacing a wide discount for theircrude compared with seaborneBrent or WTI as they run up againstoff-take constraints. Whileproducers could send crude bytruck or rail to export terminals, atthe margin this discount couldprevent producers in the Permian inparticular from achieving the scaleof growth expected by most of themajor forecasting agencies.

One channel that is open to US oilproducers is storage. Total crudeinventories are holding at their five-year average according to recentEIA data while Cushing stocks are atless than 50% of capacity. The WTIcurve remains in backwardation,meaning storage trades won’t workbut we would nevertheless expect tosee some build in stocks fromcurrent low levels as pipelinecapacity to the more valuableseaborne market is strained.

There are several political risks thatare also adding a bid tone to crudemarkets. The appointment of MikePompeo as US secretary of stateand John Bolton as nationalsecurity adviser has shifted theTrump administration to a morehawkish stance with respect togeopolitical challenges. NeitherPompeo or Bolton support the

JCPOA agreement with Iran (thenuclear deal) and theirappointments raise the risk ofpresident Trump refusing to renewwaivers on Iran sanctions asscheduled in May. After sanctionswere imposed in 2012 Iranian oilproduction dropped off sharply,falling by as much as 1mn b/d frompre-sanctions peak to trough.

Iran sanctions scenarioOil market balance: m b/d

2014 2015 2016 2017 2018-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

0.7 0.6

1.2 1.3

1.9

0.40.8

0.5

-0.4

0.3

1.4

0.2

-1.0

-0.5 -0.3

0.10.1

-0.2

-0.7

-0.4

-0.9

-0.1

-0.6

Source: IEA, Emirates NBD Research, as of Mar 2018

Exhibit 36: Market Balance



Oil Outlook

If Iranian production fell by a similaramount this year our forecasts formarket balances in the second halfof 2018 would push into a muchdeeper deficit that notionally shouldbe supportive for prices. OtherOPEC producers could fill the gapcreated by the decline in Iranianoutput. But considering theoutspoken messaging from Saudiofficials in particular to keep themarket tight a supply response tolower Iranian production can’t becounted on.

We believe there is also a strongrisk of the US placing sanctions onimports of oil from Venezuela. Sofar the White House has delayedimposing sanctions as refineries inthe Gulf of Mexico seek outalternative sources of heavy crude.Imports of crude from Iraq andCanada are already increasing asshipments from Venezuela havedeclined in line with fallingproduction.

Our core forecast is for Brentfutures to average around USD 60/bin 2018 but should any of the aboverisks materialise in a more concretemanner from Q2 onwards we wouldexpect prices could settle in a muchhigher range. Looking beyond thisyear, many of these price supportiverisks could end up catalysing adecline as producers race to takeadvantage of the high prices. Thepotential return of barrels OPEC isholding off the market along with thetimeline of developing shaleprojects means that a rapidincrease in production in 2019 can’tbe discounted.

OECD commercial inventories: m bbl

2300

2400

2500

2600

2700

2800

2900

3000

3100

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18

Source: IEA, Emirates NBD Research, as of Mar 2018

Exhibit 37: OECD Commercial Inventories

WTI: USD/b Brent: USD/b

20

30

40

50

60

70

80

90

100

110

120

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18

Source: Eikon, Emirates NBD Research, as of Mar 2018

Exhibit 38: WTI vs Brent

Our core forecast isfor Brent futures to

average aroundUSD 60/b in 2018



Contributors

Tariq Bin Hendi, PhD – Acting Chief Investment Officer

Tel: +971 (0)4 609 3555 Email: [email protected]

Anita Gupta – Head of Equity Strategy


Syed Yahya Sultan – Head of Fixed Income Strategy


Giorgio Borelli – Head of Asset Allocation and Quantitative Strategies


Sunny Naqi, CPA – Fixed Income Analyst, CIO Office


Muna Alawadhi – Analyst


Nawaf Fahad Ali Mousa AlNaqbi – Equity Analyst


Edward Bell – Director Commodity Research




Disclaimer

Reliance

Emirates NBD Bank PJSC (“Emirates NBD”) uses reasonable efforts to obtain information from sources which it believes to be reliable, however, Emirates NBDmakes no representation that the information or opinions contained in this publication are accurate, reliable or complete and should not be relied on as such oracted upon without further verification. Opinions, estimates and expressions of judgement are those of the writer and are subject to change without notice. EmiratesNBD accepts no responsibility whatsoever for any loss or damage caused by any act or omission taken as a result of the information contained in this publication.Data/information provided herein are intended to serve for illustrative purposes and are not designed to initiate or conclude any transaction. In addition thispublication is prepared as of a particular date and time and will not reflect subsequent changes in the market or changes in any other factors relevant to thedetermination of whether a particular investment activity is advisable. This publication may include data/information taken from stock exchanges and other sourcesfrom around the world and Emirates NBD does not guarantee the sequence, accuracy, completeness, or timeliness provided thereto by unaffiliated third parties.Moreover, the provision of certain data/information in this publication is subject to the terms and conditions of other agreements to which Emirates NBD is a party.Anyone proposing to rely on or use the information contained in this publication should independently verify and check the accuracy, completeness, reliability andsuitability of the information and should obtain independent and specific advice from appropriate professionals or experts. Further, references to any financialinstrument or investment product are not intended to imply that an actual trading market exists for such instrument or product. The information and opinionscontained in Emirates NBD publications are provided for personal use and informational purposes only and are subject to change without notice. The material andinformation found in this publication are for general circulation only and have not been prepared with any regard to the objectives, financial situation and particularneeds of any specific person, wherever situated.

Confidentiality

This publication is provided to you upon request on a confidential basis for informational purposes only and is not intended for trading purposes or to be passedon or disclosed to any other person and/or to any jurisdiction that would render the distribution illegal. The investor may not offer any part of this publication forsale or distribute it over any medium including but not limited to over-the-air television or radio broadcast, a computer network or hyperlink framing on the internetwithout the prior written consent of Emirates NBD or construct a database of any kind.

Solicitation

None of the content in this publication constitutes a solicitation, offer, opinion, or recommendation by Emirates NBD to buy or sell any security, or to provide legal,tax, accounting, or investment advice or services regarding the profitability or suitability of any security or investment and further does not provide any fiduciary orfinancial advice.

Third party

The security or investment described in this publication may not be eligible for sale or subscription to certain categories of investors. This publication is not intendedfor use by, or distribution to, any person or entity in any jurisdiction or country where such use or distribution would be contrary to law or regulation. It is theresponsibility of any person in possession of this publication to investigate and observe all applicable laws and regulations of the relevant jurisdiction. This publicationmay not be conveyed to or used by a third party without the express consent of Emirates NBD. The investor may not use the data in this publication in any way toimprove the quality of any data sold or contributed to by the investor to any third party.

Liability

Anything to the contrary herein set forth notwithstanding, Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns,affiliates or subsidiaries shall not, directly or indirectly, be liable, in any way, to you or any other person for any: (a) inaccuracies or errors in or omissions from thethis publication including, but not limited to, quotes and financial data; or (b) loss or damage arising from the use of this publication, including, but not limited to anyinvestment decision occasioned thereby. Under no circumstances, including but not limited to negligence, shall Emirates NBD, its suppliers, agents, directors,officers, employees, representatives, successors, assigns, affiliates or subsidiaries be liable to you for direct, indirect, incidental, consequential, special, punitive,or exemplary damages even if Emirates NBD has been advised specifically of the possibility of such damages, arising from the use of this publication, includingbut not limited to, loss of revenue, opportunity, or anticipated profits or lost business. This publication does not provide individually tailored investment advice andis prepared without regard to the individual financial circumstances and objectives of person who receive it. The appropriateness of an investment activity orstrategy will depend on the person’s individual circumstances and objectives and these activities may not be suitable for all persons. In addition, before enteringinto any transaction, the risks should be fully understood and a determination made as to whether a transaction is appropriate given the person’s investmentobjectives, financial and operational resources, experiences and other relevant circumstances. The obligations relating to a particular transaction (and contractualrelationship) including, without limitation, the nature and extent of their exposure to risk should be known as well as any regulatory requirements and restrictionsapplicable thereto.

Forward looking

Past performance is not necessarily a guide to future performance and should not be seen as an indication of future performance of any investment activity. Theinformation contained in this publication does not purport to contain all matters relevant to any particular investment or financial instrument and all statements asto future matters are not guaranteed to be accurate. Certain matters in this publication about the future performance of Emirates NBD or members of its group(the Group), including without limitation, future revenues, earnings, strategies, prospects and all other statements that are not purely historical, constitute “forward-looking statements”. Such forward-looking statements are based on current expectations or beliefs, as well as assumptions about future events, made frominformation currently available. Forward-looking statements often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “seek”,“believe”, “will”, “may”, “should”, “would”, “could” or other words of similar meaning. Undue reliance should not be placed on any such statements in making aninvestment decision, as forward-looking statements, by their nature, are subject to known and unknown risks and uncertainties that could cause actual results, aswell as the Group’s plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Estimates of future performanceare based on assumptions that may not be realised.



Disclaimer

Risk

Data included in this publication may rely on models that do not reflect or take into account all potentially significant factors such as market risk, liquidity risk, andcredit risk. Emirates NBD may use different models, make valuation adjustments, or use different methodologies when determining prices at which Emirates NBDis willing to trade financial instruments and/or when valuing its own inventory positions for its books and records.

The use of this publication is at the sole risk of the investor and this publication and anything contained herein, is provided "as is" and "as available." Emirates NBDmakes no warranty of any kind, express or implied, as to this publication, including, but not limited to, merchantability, non-infringement, title, or fitness for aparticular purpose or use.

Investment in financial instruments involves risks and returns may vary. The value of and income from your investments may vary because of changes in interestrates, foreign exchange rates, prices and other factors and there is the possibility that you may lose the principle amount invested.. Before making an investment,investors should consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment.

In receiving this publication, the investor acknowledges it is fully aware that there are risks associated with investment activities. Moreover, the responsibility toobtain and carefully read and understand the content of documents relating to any investment activity described in this publication and to seek separate, independentfinancial advice if required to assess whether a particular investment activity described herein is suitable, lies exclusively with the investor.

Intellectual property

This publication has been developed, compiled, prepared, revised, selected, and arranged by Emirates NBD and others (including certain other information sources)through the application of methods and standards of judgement developed and applied through the expenditure of substantial time, effort, and money and constitutesvaluable intellectual property of Emirates NBD and such others.

All present and future rights in and to trade secrets, patents, copyrights, trademarks, service marks, know-how, and other proprietary rights of any type under thelaws of any governmental authority, domestic or foreign, shall, as between the investor and Emirates NBD, at all times be and remain the sole and exclusiveproperty of Emirates NBD and/or other lawful parties. Except as specifically permitted in writing, the investor may not copy or make any use of the content of thispublication or any portion thereof. Except as specifically permitted in writing, the investor shall not use the intellectual property rights connected with this publication,or the names of any individual participant in, or contributor to, the content of this publication, or any variations or derivatives thereof, for any purpose.

This publication is intended solely for non-commercial use and benefit, and not for resale or other transfer or disposition to, or use by or for the benefit of, any otherperson or entity. By accepting this publication, the investor agrees not to use, transfer, distribute, copy, reproduce, publish, display, modify, create, or dispose ofany information contained in this publication in any manner that could compete with the business interests of Emirates NBD. Furthermore, the investor may notuse any of the trademarks, trade names, service marks, copyrights, or logos of Emirates NBD or its subsidiaries in any manner which creates the impression thatsuch items belong to or are associated with the investor or, except as otherwise provided with Emirates NBD, prior written consent. The investor has no ownershiprights in and to any of such items.

Emirates NBD is licensed and regulated by the UAE Central Bank.

United Kingdom

This publication was prepared by Emirates NBD Bank PJSC in the United Arab Emirates. It has been issued and approved for distribution to clients by the Londonbranch of Emirates NBD Bank PJSC which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority (FCA) and thePrudential Regulation Authority in the UK. Some investments and services are not available to clients of the London Branch. Any services provided by EmiratesNBD Bank PJSC outside the UK will not be regulated by the FCA and you will not receive all the protections afforded to retail customers under the FCA regime,such as the Financial Ombudsman Service and the Financial Services Compensation Scheme. Changes in foreign exchange rates may affect any of the returnsor income set out within this publication.

Singapore

This publication was prepared by Emirates NBD Bank PJSC in the United Arab Emirates. It has been issued and approved for distribution to clients by the Singaporebranch of Emirates NBD Bank PJSC which is licensed by the Monetary Authority of Singapore (MAS) and subject to applicable laws (including the FinancialAdvisers Act (FAA) and the Securities and Futures Act (SFA). Any services provided by Emirates NBD Bank PJSC outside Singapore will not be regulated by theMAS or subject to the provisions of the FAA and/or SFA, and you will not receive all the protections afforded to retail customers under the FAA and/or SFA. Changesin foreign exchange rates may affect any of the returns or income set out within this publication.Please contact your Relationship Manager for further details or for clarification of the contents, where appropriate.

For contact information, please visit www.emiratesnbd.com

WEALTH MANAGEMENT

EMIRATES NBD WEALTH MANAGEMENT

ABU DHABI – DUBAI – LONDON – MUMBAI – RIYADH – SINGAPORE

www.emiratesnbd.com

when markets move - emirates nbd€¦ · exhibit 2: msci all country world index – the ups and...

Documents