The last one-and-a-half year has been one of the most challenging times – if not the most -- in modern history. Thankfully, due to the vaccine rollout globally the proverbial light at the end of the tunnel is coming closer into focus.

This seems like an opportune time to assess and chart the investment roadmap for the rest of the year and even beyond.

Citywire Middle East asked some of the leading Chief Investment Officers (CIOs), heads of asset management and research head, their views on the mid-year outlook for the region.

All have one clear message: we are not simply returning to the pre-pandemic times anytime soon. Instead, the pandemic has perennially changed the global economic and investment frameworks that warrant a rejig in the traditional portfolio construction and asset allocation approach.

Asad Saeed Khan, Head of Asset Management, Emirates Investment Bank

“The traditional 60:40 asset allocation is challenged”

With stronger growth expected and the accompanied rise in inflation expectations, we continue to believe in the reflation theme albeit selectively.

We continue to target sustainable income-generating themes, with an aim to reduce volatility (via shorter-term quality credit) while retaining our focus towards inflation beneficiaries and cyclical plays (energy, real estate, banks).

This would be combined with our core investment focus on above- average growth companies with strong financial flexibility, that are expected to still command a premium. In what is expected to be a volatile second half as economies reopen and central banks rethink their positioning on easing, we are eyeing large caps within select tactical themes.

In fixed income, we will continue to focus on GCC and selective EM given the scarcity of supply and strengthening of macro fundamentals. Our duration positioning continues to be moderate. Growth uptick underpins HY while IG remains an underweight due to its longer duration and rich valuations.

Overall, higher yields and re-opening are powerful catalysts to justify a barbell allocation between growth and cyclicals. We prefer to use cash as a buffer against risks around regime shifts that could drive both equity and fixed income markets lower.

We can’t over-emphasize the importance of diversified allocation across asset classes, market capitalizations, sectors and regions. This means a portfolio balance between non-US and US equities, small/mid versus large caps, cyclical versus growth equities.

Going into H2, we expect volatility to rise as economies transition to normality and as central banks review their stance on easing. The traditional 60:40 asset allocation is challenged given the extraordinarily supportive macro backdrop and we seek to diversify portfolio risks across multiple themes in equities, fixed income, income-generating assets and cash.