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Expect more volatility

Posted: 01/30/2014 - 9:45 am

Some are wondering how is it that we are cautious on the UAE markets and yet we continue to put on selective trades.

On January 14, we turned cautious for the first time on UAE equities reducing exposures to the markets by 30% to 50% (read: Turning cautious on UAE!).

We have reiterated our cautious view in the weeks following January 14 and then we advised further reducing exposures on January 26 in anticipation of the contagion effect in light of the sell-off in global equities. Our recommendation was to keep the overall exposure to the UAE at no more than 40% (read: Watch out for contagion effect).

In the last two days, we have taken on new selective trades while at the same time highlighting the increasing high risk in the market (read: Playing the heavyweights).

Our view was simple: The risk was definitely increasing but the local liquidity could not be ignored.

Simply put, our approach was to take on the selective trades and manage the risk by managing the exposure.

We are in a situation where the local liquidity could still push the markets higher despite all the risks out there and to be completely out would mean to risk missing decent gains.

At the same time, we acknowledge the increasing risks and to balance between the two, it is imperative to manage the downside by capping the allocations and exposures to the markets.

In light of the continued weakness in global markets and the fact that the recent push in UAE equities seemed to be driven by speculators rather than institutions, we expect the recent volatility to continue.

Again, keep taking on the trades but limit the exposures.

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