In his new role as head of investments at Coutts, Fahad Kamal is allocating clients’ assets to fast-growing US stocks ahead of a challenged UK home market.
Flying home to London over Iranian airspace, from visiting relatives in Pakistan, Coutts’ recently-appointed chief investment officer was facing a geopolitical headwind when returning to his day job. But the challenge does not daunt him.
He cautions the investment community not to get carried away with the recent conflagration in Israel. Even a 10 per cent oil price hike would dent his favoured US economy by just 0.1 per cent. It would take a “huge escalation” between Iran and Israel to derail the current positive market direction, according to Fahad Kamal, Coutts’ newly installed investment boss.
While he talks about the “horrible, horrific” events currently unfolding in Gaza and Israel from a humanitarian perspective, it is Mr Kamal’s belief that geopolitical influences are over-exaggerated by market commentators.
“History suggests geopolitics is an investment red herring,” comments Mr Kamal, who recently joined the UK Royal Family’s favourite bank in November 2023 from smaller London rival SG Kleinwort Hambros. “It is very emotive, but it very rarely matters when it comes to investing. What does matter is the fundamental stuff that we focus on and that is earnings, inflation, liquidity in the markets, what central banks are doing. According to all of those indicators this remains a really optimistic time.”
Chinese whispers
Even the Chinese market — which some participants claim is adversely affected by a geopolitical stand-off with the US — is really the victim of its own government’s interference, he believes.
“The reason why the Chinese market has massively underperformed the rest of the world over the last few years is because the state did a massive crackdown, particularly on the ed tech sector,” he suggests.
Despite the rise of China economically and president Xi Xiping’s attempts to create a multi-polar world through a strategic alliance with Russian counterpart, Vladimir Putin, the investment world remains a unipolar one, says Mr Kamal, who is responsible for advising clients investing £41bn ($51bn) with Coutts.
“The US is the world’s greatest home for innovation and profit,” he says, highlighting the role of leaders including Californian computing and hardware company Nvidia. As a result, the bank has doubled down on US equities, giving clients “the most bang for our buck”, benefiting from “the best and most high quality earnings” which are “supported by very solid economic fundamentals”.
UK out of step
Sadly, this optimism does not extend to the “dated” appearance of UK PLC. Despite his immaculate and upbeat appearance — clad in a sharp grey suit and freshly ironed blue shirt — Mr Kamal squirms uncomfortably when the London market is mentioned.
In order for Coutts to regain faith in its home market, which has been prioritised by parent bank NatWest, London needs to see “some big signal” of progress towards renewed IPO activity. He talks about recent negative sentiment which led to software and semiconductor firm Arm Holdings, based in the UK university and tech hub of Cambridge, shifting to the US to list.
“They went to the US for a very good reason, to get a much higher multiple,” says Mr Kamal, unable to hide his disappointment. “But had they chosen to list in the UK, that would have been an important signal that the UK remains an important hub for capital,” he adds.
He cites the example of UK-listed blue chip Unilever, trading at 18 times earnings, against US-based competitor Proctor & Gamble, trading at 25 times. “The biggest difference between the two of them is that one is in the US and the other in the UK. If you were a brand new company coming to market, why would you not go to the US where you get a much higher premium? And that's what people are doing.”
While the investment community ponders changing the composition of the UK index to potentially compete with the US once more, Mr Kamal suggests a more nuanced approach.
“There are of course strengths to the UK market, but also much we can learn from the US in rewarding innovation, such as more effective channeling of venture capital, like our American counterparts” and fostering a favourable perception around tech IPOs, he suggests.
Without success stories of UK-listed companies, “we're going to be on this long, slow, road to irrelevance”, says Mr Kamal with genuine concern. “You know, 10 years ago, we were 10 per cent of the global equity market. Today, we’re more like 3 or 4 per cent. Where will we be in 10 years at this pace?”
Early in the rally
The family offices he speaks to — some of whom are potentially looking at relocating to other European locations, powered by the ‘Granola companies’, including GSK, Roche and his favourite continental “amazing story” of Novo Nordisk — are particularly motivated by a ‘Fomo’ mindset.
“People are fearful of missing out,” he says. “They say, ‘there’s been a huge rally. Is it too late, or is there still time for us to get back in?’ Our message to them is that you haven’t missed anything, bull markets last a long time and we’re just in the beginning of this one.”
At the same time, he warns clients to stay grounded, remain conscious of the need for defensive positions in alternatives such as gold, to minimise downside risk. He has so far avoided popular trends such as private markets, believing there is as yet no acceptable liquid solution for this “illiquid asset” to satisfy private clients.
Despite the geopolitical turbulence, clients should not be taking flight from either equity or bond markets, with a welcome return to the 60:40 balance smoothing his arrival on a bigger landing stage, says Mr Kamal.
Comparing his previous job with the new role at Coutts, he says the responsibilities are similar, but with a larger client base and higher profile. “I’ve gone from flying a smaller jet to an airliner,” he says, keenly aware that as the UK’s most high-profile private bank, Coutts is always in the media spotlight. “The mechanics of the flight are still the same. But the opportunity, the size and visibility are all much bigger here.”
Fahad Kamal will be among speakers at the PWM & FT Live Innovation in Wealth Management Summit, to be held in London on May 2 2024 .
