TLDR:
Diversify assets to hedge regional risks
Focus on high-grade bonds, not oil
Use gold to guard against volatility
ABU DHABI (The Thursday Times) — Gulf Cooperation Council (GCC) investors should consider high-grade bonds and diversify into international markets to shield their wealth from the region’s growing geopolitical risks, according to UBS Chief Investment Officer for Global Emerging Markets, Michael Bollinger.
High-grade bonds offer stability amid regional tension
Amid escalating tensions, particularly in Israel and Iran, investment experts at UBS have advised GCC investors to look beyond regional assets. Michael Bollinger highlighted the benefits of allocating funds into high-grade bonds with longer durations, such as double and triple A-rated bonds, which are designed to help investors maintain portfolio stability during volatile periods. These bonds can serve as a protective measure against disruptions in the oil market, as Bollinger notes the Middle East’s economy is tightly interwoven with oil prices.
Given the recent interest rate cuts by the U.S. Federal Reserve, emerging market (EM) bonds have shown positive performance, creating an attractive entry point for GCC investors seeking both stability and growth in global portfolios. Bollinger emphasised that high-grade EM bonds would likely benefit as global financial conditions ease, even with anticipated short-term market fluctuations.
Expanding investment focus beyond oil
The Middle East’s reliance on oil can introduce challenges, especially during geopolitical crises. Bollinger points out that Middle Eastern investors should consider diversifying into less oil-dependent asset classes like high-grade bonds. This approach would protect against potential economic disruptions if an escalated conflict impacts oil flows. He suggested that while investors in the region have substantial exposure to oil, they might explore alternatives to hedge portfolios more effectively in volatile times.
Gold and oil as strategic hedges for GCC investors
Select hedges, such as exposure to gold, can serve as robust protection against sudden market volatility, particularly given the current geopolitical tensions. Bollinger advises that gold is a dependable hedge against potential instability, as it traditionally holds its value even when other assets fluctuate. He remarked that as the U.S. election nears, investors should expect market volatility, and gold can provide a buffer to help insulate portfolios.
GCC investments and the impact of U.S. political shifts
The ongoing U.S. election has become a focus for investors, with UBS observing that a shift in the Senate towards Republican control could impact market sentiment. However, Bollinger stresses that the broader fundamentals of the equity market are unlikely to be derailed by election outcomes. He encouraged investors to avoid impulsive decisions based on election speculations, noting that a more diversified approach across asset classes offers resilience regardless of political shifts.
