Arab investment outlook this year is challenging

Posted on January 10, 2012

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Gulf markets alone lost USD 52 billion, despite significant oil revenues during 2011.

Here’s the bad news: The Middle East and North Africa region’s stock markets lost more than USD 100 billion in 2011, according to Zawya’s market analysis tool. Gulf markets alone lost USD 52 billion, despite significant revenues generated by high crude prices during 2011 keeping these economies buoyant.

Saudi Tadawul, the region’s largest market, lost USD 14 billion, or 3%, during 2011. High oil revenues and a generous stimulus package was offset by regional troubles, and the market came out fair-to-middling given the global investment climate. The UAE markets lost around USD 13 billion. Kuwait lost more than US 20 billion.

And here’s the worse news: Bill Gross, the co-CEO of PIMCO, the world’s largest bond fund, has warned his clients to lower expectations and prepare for yet another year of risky business. According to McKinsey estimates, the MENA region has little appetite for equity investments, with 65% of the assets remaining in cash and deposits.

With such a grim and uncertain prognosis of the investment climate in the near and medium term, analysts are befuddled and suggest caution.

Says Gross: “Adjust your expectations, prepare for bimodal outcomes. It is different this time and will continue to be for a number of years. The New Normal is “Sub”, “Ab”, “Para” and then some. The financial markets and global economies are at great risk.”

So, what’s an investor to do? Commodities look like an iffy play if global economic growth continues to tank. Gold seems overpriced but could see further buying if the Iran-US standoff continues or escalates. The US dollar looks strong but may weaken if another round of quantitative easing is announced. All in all, it is going to be a challenging year for investors.

— Yazad Darasha

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Posted in: Markets