JANUARY 2022

2022
SEEKING
SUSTAINABLE
RETURNS
EMIRATES INVESTMENT BANK HOUSE VIEW

EMIRATES INVESTMENT BANK pjsc www.eibank.com

JANUARY 2022

2022 - Seeking Sustainable Returns

Foreword
Happy New Year!

Emirates Investment Bank is delighted to publish its annual Outlook

which is part of our thought leadership on investment insights.

While the global economy and risk assets witnessed a sharp rebound
from the pandemic on the back of unprecedented fiscal and monetary
stimuli, Covid-19 variants, regulatory changes, supply shortages and
persistent inflationary pressures prevented the global economy from
fully recovering to pre-pandemic levels. Global equities benefited from
the sharp earnings growth momentum in 2021 albeit from a low base.

We expect 2022 to be one of ‘fiscal policy moderation - monetary

policy normalisation’ with security selection, asset class, sectoral and
regional differentiation key to investment success. With valuations rich
across most asset classes, achieving sustainable performance is going
to be challenging this year.

Divergent monetary policies in China and the US, a late-stage growth

environment, volatile geopolitics, regulatory changes, policy uncertainty
and the spectre of inflation are converging to create a cocktail of factors
that need to be carefully navigated.

In our view, the race to decarbonize and rapid technological advances

across industries will continue to be mega investment themes for
the decade. We foresee significant investment opportunities in
enabling technologies like digitalisation, industrial automation and
environmental tech.

We look forward to helping you navigate 2022 and beyond with

confidence as we firmly believe active management will be critical this
year to position your investment portfolios.

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2022 - Seeking Sustainable Returns

2021
The Year Gone By wage pressures, which are more permanent in
nature and should not be classified as transitory.

The year 2021 was a tale of strong economic We also know that global GDP growth will likely
recovery, unprecedentedly accommodative continue to be above-trend which is positive
monetary policies accompanied with uptick in for corporate earnings growth. For the S&P500,
inflation/yields, sharp earnings rebound and muted earnings growth is expected to normalize in the
volatility. high single digits and will continue to play catch-
up to valuations. This is partly the reason why
Grappling with more lethal variants during the return expectations are lower for 2022 than they
first half of the year, most economies gradually were in 2021. Last year, the S&P500 was already
came out of pandemic-induced lockdowns. Robust pricing-in 1) a strong rebound in economic
vaccination campaigns coupled with record activity and 2) the flush of liquidity from
monetary and fiscal stimuli produced a rapid monetary and fiscal policy. These two factors are
rebound in employment, propelling risk asset prices no longer in play in 2022.
to record highs.

Investors face fresh challenges as 2022 begins.

While inflation in the US and the developed world
is at multi-decade highs, China appears to be
following through on its short-term pain-ridden
Key Factors to
reform agenda. Monitor
The economic environment remains dynamic and
with valuations lofty for most risk assets, 2022 will As a result of rising inflation and above-trend
likely be a challenging year and one will have to economic growth, the Fed has realized (only
carefully navigate among the various asset classes. very recently) that it has to reverse course
and normalize monetary policy much quicker
than earlier forecasted. Quantitative easing
(QE) will likely come to an end by the end
of Q1, paving the way for interest rate hikes
which will eventually evolve into quantitative
tightening (QT). With these expectations now in

Outlook 2022
place, investors need to position for this more
restrictive monetary environment accordingly.
Central bank stimulus was key in suppressing
market volatility in 2021 and investors should
If 2021 was a year of recovery for the global not count on such measures this year to protect
economy and rapid gains for risk assets, 2022 could against downside risks.
still be a positive year, albeit with significantly lower
return expectations and much higher volatility. That said, although central bank policy is
Supply disruptions have depressed or delayed expected to become more restrictive, we also
economic output. While some market pundits have need to highlight that it is normalizing from
primarily attributed higher inflationary pressures a record-low base. By historical standards, a
to supply bottlenecks, which generally have a normalized Fed funds rate even at the 2.0% level
temporary impact, we also need to recognize that – equivalent to eight rate hikes of 25bps each by
inflationary pressures are likely to sustain at higher mid-2024 – will still be very low and positive for
risk assets over the secular horizon. Technological
levels than their pre-pandemic rates. The sea of
advances across industries continue to have an
liquidity unleashed through ultra-loose monetary
exponential effect on productivity. Such efficiency
policy has to have an inflationary effect. Meanwhile, gains continue to structurally drive down prices
a tight labour market in the US is creating higher and a normalized rate above the 2% level will
likely not be warranted, in our view.

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2022 - Seeking Sustainable Returns

We believe that seeking sustainable returns Meanwhile and in response to fair-to-rich equity
requires greater exposure to a mix of value valuations, fixed-income may actually outperform
and growth through defensive sectors, quality against current expectations if any left-tail risks
firms, dividend growth strategies and many were to materialize. Rising interest rates and
of the secular trends that are transforming the inflation could make longer-duration bonds risky
world around us. and we prefer to gradually add to duration as
yields keep rising. After a negative year in 2021, we
see fixed-income asset class still facing headwinds
from tight spreads and lower absolute yields. We
Asset Class Positioning favour the high yield universe albeit selectively
The economic backdrop for 2022 warrants as credit is less of an issue at the moment with
a relative preference to equities as earnings a strong US consumer and a healthy corporate
growth momentum is expected to remain a America. We believe high yield securities, primarily
tailwind while a higher inflation environment in the US and emerging markets (EM) , should
will act as a headwind for fixed-income. Within benefit from higher carry as well as tighter credit-
equities, we favour a multi-pronged approach: risk premia, partially offsetting the expected uptick
1) mega techs have proven to be resilient and in sovereign yields.
continue to set new trends, 2) large cap tech
As a caveat, covid variants continue to play
companies generating attractive free cash
spoilsport for consumers, businesses and
flows should continue to be drivers of the new
policymakers. However, the variants are likely to
world economy, namely in cybersecurity, the
be less lethal and many governmental authorities,
metaverse, biotechnology, cloud computing
mainly from Europe, are starting to consider
and artificial intelligence, 3) diversification
treating the virus as an endemic illness, like the flu.
into defensive sectors/companies such
While the pandemic may not yet be over, the path
as financials, healthcare, and consumer
to normalcy has been set and will likely continue to
staples, and 4) dividend yielders that provide
get stronger. The market has largely taken the near-
attractive growth in dividends and sustainable
term economic and health risks in stride, assuming
current income.
the hit from Omicron is likely to be short-lived. In
Overall, and while growth companies have our view, a slight shift from high-quality growth,
outperformed their value peers for the better and into genuine value, defensives, and income
part of the last decade, we would avoid loss- should provide attractive risk-adjusted returns and
making, early-stage high growth disruptors prove to be resilient in 2022, protecting against
as the risk-reward potential is not in their known and unknown risks.
favour at the moment. Yes, valuations do
matter and we have seen a strong sell-off
in such companies as investors rationalize
their expectations. High quality will continue
being our favoured pocket given its superior
risk-adjusted performance and resilience over
multiple business and economic cycles.

Our base case outlook for 2022 focuses on

slowing but sustainable growth, along with
resilient corporate profits. We expect market
selloffs to be short-lived given above-average
GDP growth and continued re-opening of
many economies. Investors will need to
manoeuvre around range-bound and slightly
positive trending markets as valuations now
reflect most, if not all, of the growth expected.

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T O P INVEST MENT THEMES FOR FY 2 0 2 2

01. Fixed Income - Floating Rate and

Pockets of High Yield

After consistently dismissing the threat of and income. The current environment remains
inflation for much of last year, the Fed’s optimal for a credit barbell strategy. As yields
recent pivot on the issue is part of a general rise further, we would gradually add to duration
shift in global central banking towards less to balance out the credit risk that comes from
monetary stimulus. higher yielding corporates – both in developed
markets and EM.
While we are starting to see early signs of
easing inflationary pressures as supply chain We continually strive to balance the two key
issues improve, we are likely to witness risks within fixed income – duration and credit.
above-trend inflationary pressures for the We currently favour bottom-up opportunities
medium term as resurgent demand outstrips in global high yield, corporates as well as
disrupted supply. As a result, markets will sovereigns, with very strong liquidity prospects
no longer have the cushion of an ultra-loose and shorter-term in duration.
monetary policy environment, a powerful
conditioning that fuelled the “everything We particularly find EM high yield attractive
rally” in 2020 & 2021. as we believe the spread component offers an
adequate cushion against the adverse impact
In 2022, the upcoming transition in Fed of rising rates and offers attractive growth
policy will be key for asset valuations even potential for long term investors.
as fiscal policy is transitioning to being
less stimulative amid strong consumer
and business spending. Although
US Treasuries have remained
relatively calm amid the Fed's
hawkish pivot, there has been a
steady rise from the low yields Commodities - US Inflation Mix
seen during the early stages of
the pandemic.

While we agree with the

consensus view that equities are
again expected to outperform
bonds in 2022, rising yields are
likely to derate lofty P/E multiples
and equity returns should track
earnings growth at best amid high
volatility.

Given the backdrop of tightening

liquidity conditions, inflationary
pressures and rising yields, we Source: Bloomberg, EIBank
expect floating rate notes and
select HY bonds to provide the
right balance between stability

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02. Select Emerging Markets

The sudden shift recently toward

faster tightening by the Fed and the
EM Offers Compelling Yield
emergence of omicron has caused
higher volatility for most EM of late.
The backdrop of monetary stimulus
tapering in major economies amid
persistent inflationary pressures is
likely to keep EM under pressure
as we move into 2022. One should
brace for significant volatility
within EM if the severity of the
virus proves to be worse than
anticipated, particularly among the
several nations that still have large
unvaccinated populations.

In our view, the idea of EM as a

homogeneous bloc is behind us and
a prudent EM investment strategy
will be about differentiating winners Source: Bloomberg, EIBank

from losers. EM countries like Turkey

with independence-compromised
central banks will bear the brunt of
is likely to be much more supportive of
rising inflationary pressures and the strong
globalization, a positive for EM countries with
Dollar whereas countries like India with
a scalable export base.
reasonable government debt against strong
reserves and current account balance are Meanwhile, China, the largest economy in
likely to do well in the long-term. the EM universe, is going through several
idiosyncratic phenomena – regulatory
Specifically, positive structural forces like
crackdowns, property downturn, zero-
a younger population, financialization of
Covid policy, and a big government focus
savings, digitalization remain key themes
on wealth redistribution. That said, equity
within EM. Businesses involved in e-payment,
valuations appear to have priced in much
food delivery, industrial digitalization,
caution and should be well-supported from
renewable energy, semiconductor design
here as policymakers stand ready to stabilize
& manufacturing are likely to do well as
economic growth if needed.
economies progress up the value chain and
capitalize on the “China+1” supply chain We recommend selective exposure to EM
diversification trend. high-yield bonds both in the sovereign and
corporate space. Within equities, we like
The pandemic forced several countries to
select large banks and industrials in India,
promote domestic manufacturing and self-
large profitable consumer tech companies in
reliance, impacting global trade. Now with
China and select large-caps in the UAE and
the pandemic hopefully on its last legs, global
Saudi Arabia.
trade is set to recover. Trade is starting to
pick up globally and the Biden administration

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03. Healthcare 04. Financials

2021 marks the second full year of the Although fiscal policy is transitioning to being
Covid-19 pandemic which still continues less stimulative, the effect is likely to be
to dominate health systems’ attention and cushioned by robust consumer and business
resources. In our view, Covid-19 has laid spending. Moreover, lending growth is still
bare the vulnerabilities caused by decades slow due to abundant liquidity conditions
of underinvestment in some areas within and is expected to recover with GDP growth
healthcare. globally.

Despite the pandemic’s devastating impact Specifically in the US, relatively strong
on lives and livelihoods, it has presented the consumer spending, high accumulated
healthcare sector with a powerful opportunity household savings since January 2020, strong
to accelerate innovation. Governments earnings growth on the back of still above-par
globally are waking up to this challenge with GDP growth point to a robust credit growth
renewed public spending focus on healthcare. environment. Concerns over the omicron
In the US alone, the Biden administration Covid-19 variant have flattened the yield curve
is set to significantly ramp up government more recently, yet the Fed’s tapering may
spending across the healthcare sector – help with its steepening alongside inflation
focused on health equity and adoption of expectations.
greater digitally enabled services.
In our view, global financials will continue to
We believe data is going to be the bedrock benefit from cyclical tailwinds, such as above-
of this rapid shift where healthcare experts trend economic growth and curve steepening,
build outreach for the underserved in credit growth as wages rise alongside secular
addition to new breakthrough, tailored AI- themes, including financial inclusion, fintech
based healthcare programs. While several and demographics.
innovations were already underway for years,
Covid-19 has accelerated several existing and Despite recent volatility caused by the virus,
emerging trends in healthcare such as clinical supply-side constraints and the Chinese
innovation, newer delivery models for care property sector woes, the global economy
(telemedicine), integration of lifesciences and is broadly in the mid stages of recovery, and
healthcare, AI-enabled chatbots for diagnosis, quality technology-focussed banks with leading
amid shifting consumer preferences and asset-liability franchises will continue to do
behaviour. well.

Other long gestation but rapidly progressing We favour top-tier banks for their quality of
medical megatrends include robotic-surgeries, loan book, large base of low-cost deposits and
nanotechnology, genome sequencing, the sector owing to its high correlation with
bioinformatics, imaging and devices that are rising long-term interest rates.
based on IoT/ Robotics.

The challenge is to provide better care at

lower cost. In our view, companies that
address age-related diseases, along with
innovative businesses that provide tech-
enabled, preventative healthcare at scale
would benefit.

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T O P INVEST MENT THEMES FOR FY 2 0 2 2

05. Private Markets

The magnitude of liquidity infused globally to thereby offer long-term value. We focus our
stave off the ongoing health crisis has lowered attention into uncorrelated asset classes, like
the opportunity cost for public market asset private equity and private debt.
classes and left little room for alpha generation.
Despite some normalization expected in Within the space, we like residential real
interest rates, a relatively low interest rate estate where fundamentals are strong and
environment is expected to persist for the where loans provided to homeowners have
next several years. This should further boost high levels of equity. Likewise, we also prefer
investors' search for yield. As a result, we see private investments in digital real estate that
private markets as a way to diversify investment remains a multi-year theme as businesses
opportunities and return profiles create/augment their omnichannel presence.
in 2022.
Broadly, we see private market investment as a
Private markets typically complement our view strategic part of a global multi-asset portfolio
on markets as a whole. Private investments are given its potential for generating sustainable
niche, more actively managed, provide access return, low correlation and diversification
to sectors catering to the latest technologies, properties.
have lower correlation to public markets and

Private Debt Assets

1500

300

Source: Bloomberg, Preqin, EIBank

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06. Real Assets & Other Income Strategies

Even though US corporate earnings growth is We believe the prospect of sustained inflation
likely to remain robust and liquidity conditions will act as a tailwind to real assets. Higher
tightening yet benign, extracting meaningful inflation improves the negotiating power of
returns from plain vanilla public equities and landlords in the short-term while longer-term
bonds is going to be challenging in the near leases act as inflation hedges.
to medium term as the starting valuations are
stretched in some areas of the market. We particularly like REITs providing self-
storage space for people working from
The post-pandemic, stimulus-driven rapid home and data centres catering to the digital
recovery growth the global economy is economy. That said, covid variants and
experiencing will likely fade in 2022 and regulatory uncertainties (like in China) could
longer-term bond yields are already signalling impact the sector, so a bottom-up approach
that outcome. to this asset class is imperative.

This will pose challenges to traditional Moreover, we are constantly on the lookout
60/40 portfolios and calls for more dynamic for unique ideas and one area of interest
allocation that can potentially mitigate has been in OTC structured notes which
inflation risk. In a low yield, higher inflation offer customized payoffs. Barrier Reverse
environment that we are likely stepping into, Convertibles offer high fixed payoffs for
we prefer to allocate to real assets with a assuming a conservative degree of equity
positive real yield and consistent cash flows. drawdown risk. This product offers a significant
Also, low long bond yields are good for real yield with manageable risk as we construct
assets as refinancing existing debt at lower such ideas only on our high conviction names.
rates is value-accretive for such capital-
intensive businesses. Given the macro backdrop, we see low to
negative returns for government bonds
Publicly listed US REITs had a very strong 2021 marked with higher volatility.
and given the negative real yield environment,
we expect specific REITs to do well in 2022.

US REITs vs. S&P 500

Source: Bloomberg, EIBank

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07. Inflation beneficiaries

By the end of 2021, central banks threw in the a greener future. We remain positive on specific
towel, quickly shifting from a reassurance that industrial, precious and base metals.
inflation was “transitory” to conceding that it
is more persistent. Although the jury is out on Also, given the debt burden on governments
the direction of inflation in the coming years, in the aftermath of the pandemic, authorities
we expect prices to remain high in 2022 albeit remain willing to tolerate higher inflation.
rate at which they increase will moderate. To hedge against unanticipated inflation,
we recommend exposure to inflation-linked
A key reason for the uptick in inflationary sovereign bonds via TIPS, shorter duration
pressures was supply chain disruptions equity funds including cyclical and value
and while some of that should ease over stocks.
the course of 2022, we believe years of
underinvestment in certain commodities While equities remain best equipped to
coupled with increasing demand for them weather periods of higher demand-led
amid a conscious shift to electrification and inflation, over the secular horizon, we prefer
decarbonization augurs well for commodity asset-light business models that enjoy pricing
prices. Inflation will likely also stay above power with high operating leverage. With low
pre-pandemic levels due to rising wages and marginal costs, higher volumes directly translate
reflation on the back of an accelerated shift to to high earnings.

Value Benefits in a Rising Inflation Environment

Source: Bloomberg, EIBank

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LO NG T ER M SECULAR THEMES

The world is going through an extraordinary period of innovation in technology, healthcare,

energy transition and several other sectors which will continue to drive research, investment and
value creation. Several industries and sectors are being disrupted along the way, creating winners
and losers.
While valuations in leading companies within these thematic areas have increased significantly,
opportunities abound for patient long-term investors. Moreover, high levels of financial leverage
in the system, excess liquidity and expensive valuations are bound to spur volatility and trigger
forced sell offs, creating alpha opportunities.
We focus on technologies of the future such as semiconductors, AI, cybersecurity and cloud
computing while balancing exposures across geographies.

a. Technology - Digitalization

While 2021 may have been a good one for There hasn’t been a more exciting time to
tech company valuations, it was rough for the be involved in technology. The pandemic
industry’s overall reputation. Pressure is rising on has only confirmed that technology is
US big tech firms as authorities look to tighten the mainstay in solving most of our major
regulation and make antitrust enforcement challenges. The recent emergence of the
easier. Meanwhile, China has been on a year- Omicron variant has only highlighted the
long regulatory crackdown aimed broadly at difficulties in predicting the likely path of the
its internet giants and has already introduced a virus and has brought home the reality that
series of legislation on issues ranging from anti- we will be living with the virus. While initially
monopoly to data security. viewed as a stopgap measure, the work-from-
home trend is likely to be permanent. As a
Big tech companies are experiencing a result, data consumption is going through the
strong regulation phase now, they have been roof further boosting the 5G ecosystem. Also,
experiencing a high innovation phase for a cryptocurrencies could gain real-world traction
while and we see a few key trends/opportunities and legitimacy in the metaverse world.
emerge in the long run.

FAAMG (equal-weighted)

Source: Bloomberg, EIBank

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Metaverse - an intersection of physical and applications take off as manufacturers tap

virtual/augmented reality, an immersive world innovation to prevent disruptions.
where users, or their digital avatars, can
participate for work and play could be the next Cloud solutions are still at a nascent stage
generation of the internet. Metaverse could well across EMs and there is room for their
fundamentally change the way we consume, catch up with that in the developed world.
and the way businesses are conducted over the Decarbonization, electrification, AI and the
next couple of decades. Against this backdrop, likes are all powered by technology and tech
traditional businesses will have to rethink their is still our primary engine of economic growth.
marketing, product experience and delivery
Geopolitically, both sides of the West-China
models. This will likely throw up many startups
divide seek technological supremacy and we
that enable businesses align with the new way of
expect major investment toward this aim.
doing things.
That said, it is has become challenging to
Although the consumer tech industry has so
find value in this sector via resilient and high
far been a winner in digital transformation, the
quality names, as valuations already reflect a
destabilizing chip shortage and supply chain
large part of this secular growth expectations.
crises laid bare inefficiencies in manufacturing
and long-standing just-in-time inventory
practices, and we are seeing industrial internet

b. Electric Vehicle
A global consensus is fast emerging on the valuations and could face a highly competitive
importance of fighting climate change even environment as conventional automakers like
as markets continue to forcefully drive real GM, Ford, Volkswagen catch up with their
corporate action. The electric vehicle (EV) market own offerings.
is on a roll albeit from a very low base as EVs
account for less than 5% of vehicles sold in the That said, we think EV supplier stocks
US. It is reasonable to expect that the passenger offer better risk-adjusted returns versus
vehicle market will largely be electric over the manufacturers in the medium to long
next decade or so. term. Top ancillary players should benefit
irrespective of which automakers eventually
The world’s mobility sector is in transition and the win the market share battle in the EV space.
electrification of vehicle fleets will only intensify
as automakers phase out investment in gasoline As a caveat, difficult economic trade-offs loom
vehicles. Several governments are offering large. The supply of batteries will be critical in
incentives for setting up new manufacturing expanding the EV market. Rising commodity
units for EV or batteries. prices and supply chain bottlenecks could
push up the cost of batteries. The recent
The US has been relatively slow but EV sales energy price spike is perhaps a timely
in the US are likely to get a big boost in 2022 reminder of the flexible approach required
under the “Build Back Better” legislation. to tackling climate change. While steady
While governments across the globe attempt progress in moving away from fossil fuels
to incentivize, subsidize domestic firms in an continues, it will be a long journey requiring
attempt to catch up with China which currently reliance on conventional oil and gas for quite
leads the race to an all-electric future, we try and some time in our view.
look beyond the pure-play EV makers.

Tesla and Nio, market leaders in the EV

manufacturing space, trade at extremely rich

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c. Cybersecurity

Cyber security is a key theme and governments are While data privacy and cyber security are
primarily driving its growth. With the evolution of important areas to be diligently dealt with,
new-age technologies and tech-driven businesses we remain mindful of the investment risks as
we keep talking about, stringent data privacy and countries take it to another extreme in the name
cyber security requirements are being introduced. of national security. In the coming years, some
sort of balance on this front will need to be
With greater digital connectivity comes greater arrived at.
risk of cyber-crime and digital security is becoming
a national-security level agenda. In effect, cyber However, this presents big opportunity for active
security as an investment theme is receiving policy investors like us to participate and capitalize
impetus. on this multi-decadal theme. In our view, cyber
security is a subset of software and one can
Even international listing of companies is being ride this wave via traditional pure-play tech
questioned amid security concerns and data companies, via firewall providers or via companies
sharing risks. China for instance has mandated that might be potential beneficiaries of increased
some of its technology companies to delist from emphasis on digital security.
the US market due to data security apprehensions.
Although market leaders in this space would benefit
The dramatic increase in WFH and the pressing from operating leverage as they scale, investors
need to move digital infrastructure to the cloud has need to keep a close eye on valuations. Even as
increased data security risks. Ransomware attacks top cybersecurity firms are likely to keep generating
on states and large institutions have increased in solid revenue growth over the next several years,
the recent past and regulations are being drafted their valuations are already pricing in a lot of this
to unify state resources under one umbrella to growth and a weak quarter or two could have a
tackle the evolving challenge. sharp negative impact on stock prices.

d. 5G

Simply, 5G is the fifth-generation technology supply chain and manufacturing practices in

standard for broadband cellular networks and is light of disruptions.
the successor to the 4G networks which provide
data connectivity currently. The pandemic has While major companies are already investing
accelerated several technological trends like work- heavily into this future technology, customer
from-home, online streaming that highly depend adoption is also gathering pace and spawning
on faster internet speeds and networking. the need for newer consumer products. For
example, Apple and Meta (Facebook) could
In our view, 2022 should see further deepening launch AR/VR headsets next year which will
of 5G markets globally with newer and more create a surge in demand for compatible
sophisticated applications and services come devices. Augmented reality (AR) offers a
to market. Cloud platforms, IoT applications, realistic "try before you buy" experience by
industry automation, autonomous and electric overlaying product images into real-world
cars require faster data connectivity. Even on home settings, helping to assure shoppers on
the enterprise side, 5G will play a critical role in their purchase decisions.
smart manufacturing as businesses review existing

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Data service providers, network

equipment manufacturers, consumer
Retail Investments in AR/VR
electronics makers, semiconductors,
technology solutions will be some of
the direct beneficiaries as 5G becomes
available globally.

That said, we remain mindful of ongoing

regulatory risks around this theme as the
US-China decoupling poses potential
threats to certain stocks and business
models.

We recommend participation in the

above themes via thematic funds and
active ETFs as the story is fairly long-
term and disruptions are likely. Source: Bloomberg, EIBank

e. Digital Assets

While gold lost its hedge appeal somewhat to where people use avatars to play games, transact,
Bitcoin despite accelerating inflation last year, and socialise could start to take off. Also, users
2022 may well decide whether Bitcoin gets could swap digital assets like non-fungible tokens
reduced to a largely millennial-driven speculative (NFT) across virtual worlds.
instrument or emerges as a credible alternative
to government-backed currencies. Importantly, we concede we are not able to assign
any fundamentals to crypto and its possible
Cryptos are risk assets, but the primaries - linkages to the real world even as we continue
Bitcoin and Ethereum - may be transitioning to study blockchain and Web 3 and assess their
toward stores-of-value as diminishing supply is a full impact on the future of the internet. Also,
key attribute shared by the top two cryptos. regulation could make or break cryptocurrencies
and we remain watchful of how regulators will
Regardless of what happens to Bitcoin and treat the emerging crypto economy.
cryptocurrencies in general as an
asset class, we are convinced about
the blockchain technology underlying
several of the most popular digital coins
and envisage it to be a bedrock for the
internet of the future.

Web 3 is expected to be the next version

of the internet controlled by select tech
giants to begin with and likely to be
decentralised (blockchain-based) with
data distributed across networks and no
single entity owning the information.

In our view, there is enormous potential

for such decentralized metaverse-based
asset interoperability. For example,
blockchain-based metaverse gaming, Source: Bloomberg, EIBank

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Key Risks

Fed policy error is one of the key risks for The stop-start economic environment
investors and the global economy in 2022. globally due to newer virus variants may
While we believe that the market should well delay the supply side normalization
be able to absorb small and gradual pushing inflation to uncomfortably high
monetary policy adjustment, risk assets levels in 2022. This could undermine
remain vulnerable to any overreaction purchasing power and consumer
from policymakers in the face of persistent sentiment.
inflationary pressures. Our top concern is
the risk of disruptive inflation leading to Geopolitics - Supply disruptions of
premature monetary policy tightening. global energy (oil and gas) pose a large
risk to global economies especially the
China may continue its regulatory developing world.
crackdowns and deleveraging some parts
of its economy. With less willingness to go
back to debt-fuelled growth, China may
continue to weigh on the global economy.

Themes for 2022 Actionable Ideas

Fixed Income - Floating Rate Invesco US Senior Loan Fund, AB Mortgage Income Fund,
and Pockets of High Yield GS Emerging Markets Corp. Bond Portfolio

UTI India Dynamic Equity Fund, Schroder ISF - Asian Opportunities,

Select Emerging Markets
KraneShares CSI China Internet ETF

Healthcare Vanguard Health Care ETF, iShares Biotechnology ETF

Financials Vanguard financials ETF

Private Credit and other select multi asset alternative strategies

Private Markets
(Execution-only restricted offering to professional investors)

Real Assets & Other

iShares Core US REIT ETF, Allianz Income and Growth Fund
Income Strategies

Inflation beneficiaries Energy Select Sector SPDR ETF

Long term Secular Themes Actionable Ideas

Technology - Digitalization iShares Expanded Tech ETF, Candriam Robotics & Innovative Technology,
iShares Semiconductor ETF

Global X Autonomous & Electric Vehicles ETF,

Electric Vehicles
Global X Lithium & Battery Tech ETF

Web 3.0 (Cybersecurity, 5G,

First Trust Nasdaq Cybersecurity ETF, iShares Semiconductor ETF
Cloud Computing, Digital Assets)

EMIRATES INVESTMENT BANK pjsc 14

2022 - Seeking Sustainable Returns JANUARY 2022

FOR MORE INFORMATION, CONTACTS:

PLEASE CONTACT: Asad Saeed Khan, CFA
Head of Asset Management
Emirates Investment Bank pjsc asad.khan@eibank.com
PO Box 5503, Dubai
Yaser Al-Nimr
Dubai Festival City, UAE
Director - Asset Management
+971 4 231 7777 yaser.alnimr@eibank.com
Gurpreet Singh Vacher
+971 4 231 7788 Director-Product and Investment Solutions
gurpreet.singh@eibank.com
www.eibank.com
Joyson D’Souza, CFA
Associate Director – Asset Management
joyson.dsouza@eibank.com
Ravindra Deshpande
Associate Director – Asset Management
ravindra.deshpande@eibank.com

IMPORTANT INFORMATION
This report is for our clients only. It is not an offer or a solicitation to offer, buy or sell any security or instrument or to
participate in any particular trading strategy. This report is based on current public information that we consider reliable,
but it should not be considered accurate or complete.

This report does not constitute advice on or a recommendation with respect to any of the investment strategies, themes
or ideas mentioned in the report. It has been prepared without regard to the individual financial circumstances and
objectives of persons who receive it. We recommend that investors independently evaluate particular investments and
strategies and we encourage investors to always seek professional advice. The securities, instruments or strategies
discussed in this report may not be suitable for all investors and certain investors may not be eligible to purchase or
participate in some or all of them.

The value of and income from investments may vary because of a variety of factors. Past performance is not necessarily
a guide to future performance. Estimates of future performance are based on assumptions that may not be realized.
Fluctuations in exchange rates could have adverse effects on the value, price of and income derived from certain
investments. Certain transactions give rise to substantial risk and are not suitable for all investors.

We and our affiliates may transact the securities or derivatives referred to in this research. We may also make investment
decisions or take proprietary positions that are inconsistent with the recommendations or views in this report.

Emirates Investment Bank pjsc is regulated by the Central Bank of the United Arab Emirates.

EMIRATES INVESTMENT BANK pjsc 15