Pascal’s pensées on global markets: Fed will wait, Greek fears overdone, EM is a dead concept

Anybody strolling along the avenues of financial activity in the UAE recently will have been struck by the increased presence of the French.

The language is more frequently heard than before, French banking executives seem to be cropping up in many transactions, French investment banks are growing in influence. In other forms of commerce – infrastructure, construction and energy, for example – French corporates are getting more involved in the UAE’s business life.

Pascal Blanque believes there is a simple explanation for the phenomenon. “There are 500 French people each month coming to the UAE to try to find a job. I get the impression that the Americans are pulling back a little from the region, maybe the French will fill the gap,” he suggests, noting too that earlier this month the French president François Hollande became the first western leader to attend a summit meeting of the GCC.


Mr Blanque, on a visit to Abu Dhabi that had nothing to do with his president’s visit, he insists, represents an institution that could not in any way be regarded as arriviste in the region.

He is the chief investment officer and deputy chief executive of Amundi, the largest European asset manager and the only European in the top 10 asset management league.

Amundi grew out of the asset management business of Crédit Agricole, the bank usually regarded as the rock of the country’s wealthy farming community, but it also has historic ties with the Middle East via its ownership of Banque de Suez, which financed the 19th-century construction of the eponymous canal. That is some heritage.

Mr Blanque is a good example of the kind of philosopher-financiers France seems to produce effortlessly. He is author of a number of books, with titles like The Social Economy of Freedom and Philosophy in Economics.

But at Amundi’s utilitarian HQ in the capital’s Khalidiya district he was more interested in talking global investment practice, rather than philosophical theory, and about how the Middle East fits into the French financial world view.

On the burning investment issue of the day, the chances of a rise in American interest rates, he had a firm view. “I don’t believe the Fed will go for it this year, and if they do it will be a non-event, especially for bonds. It will be more than balanced by the quantitative easing coming from Europe and Japan. We should not be too American-focused, but I don’t believe they will go for a big hike this year.

“The world is in a sweet spot for more risky assets, including emerging markets, at the moment, mainly because of the actions in Europe and Japan. Asset managers everywhere are rebalancing their portfolios because of the QE measures there, and that has led to a redefinition of what constitutes emerging markets [EM],” he says.

The EM taxonomy has changed dramatically with the growth of eastern economies, the financial crisis and subsequent economic pressures. The “ Asian tigers” gave way to the “Brics”, then came the emergence of the “Fragile Five” – Brazil, India, Indonesia, South Africa and Turkey – which became the “Suspect Six” with the addition of Russia.

“The global concept of EM is dead,” says Mr Blanque definitively. “Most investors are not looking globally at EM any more, they realise that the countries that made up that class are very different, and they are being more discriminating. They want to identify and avoid the bad guys.”

Where does Amundi allocate its estimated €750 billion of assets under management? He believes that US valuations are stretched, that Europe is coming back as an investment destination, and that China is definitely not a “bad guy”.

“European economies are on their way to recovery and there are signs of cyclical improvement. Energy costs, currencies and credit growth are all going the right way, and fears of fragmentation are easing. I think Greek fears are overdone and Greece will stay in the euro zone,” he says.

On the US, he admits to doubts about the strength of the economic recovery and the double-edged nature of the fall in energy prices. But he also has concerns about currency movements and the interplay between the dollar and the Chinese yuan. “The world is all about currency wars, and the Chinese currency is the most sensitive for the Americans. Will the Chinese be tempted to further depreciate the renminbi? That’s a big question for America,” he says.

So where does the Middle East fit in the big world view? “It is all about oil and the dollar. I don’t expect a sharp rebound in the oil price because there are few signs of fast acceleration in global demand.

“There is still a lot of capital in the Middle East and the main problem as I see it is to find opportunities for investment. Regional investors I am sure will be aware of the trend towards the rebalancing of asset allocation toward European equities and property. Like any part of the world, investors here need to find effective ways to make capital work for you.”

Mr Blanque does not see security as the defining issue for the Middle East. “In Paris, we know all about the issue of security. It’s not a regional issue for the Gulf, it’s a global issue.”

fkane@thenational.ae

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