There are pros and cons for a weak Dollar. Its effects on exports and consequently the US GDP during these hard economic times are clearly a plus. On the flip side, it can be cause for inflation both within and outside the United States. Internationally speaking, countries with currencies pegged to the US Dollar have the most to lose.
As the USD deteriorates in value such countries lose relative purchasing power of their currencies and their economies can feel inflationary pressures. In recent weeks, however, the Dollar has been showing some signs of recovery, which has brought some relief to Gulf countries. "The strengthening dollar is good for the Gulf region because it will reduce the imported inflation in the region and it also increases the purchasing power of the regional currencies." said Monica Malik, Director of Economic Research, EFG Hermes, a regional investment bank.
The slowdown in Euro economies has been more than anticipated by policy makers and if continued such trends can strengthen the US Dollar even further. Good news for those Americans who were postponing trips to Europe for fear of big dents in their checking accounts.
"Both the dollar weakness and the interest rate cuts have been painful for the GCC countries, but now the worst is over. However, it is in the interest of the regional economies to have greater flexibility in monetary and exchange rate policies to meet the needs of the regional economies," said Malik.
Tuesday, September 16, 2008
Thursday, September 11, 2008
GCC Investment Opportunities must not Be Overlooked
While there is considerable enthusiasm surrounding every move made by rich Middle Eastern sovereign funds, capital movements in the opposite direction must not be overlooked. The Gulf Cooperation Council (GCC) Countries represent one of the fastest growing regions in the world.
While the US economy has stalled, the global economy has expanded at 4% to 5% annually for the past 5 years, according to the National Real Estate Investor. Worldwide, the number of high-net-worth individuals grew 6% in 2007 to more than 10 million. In the same period the number of people with more than $30 million in assets grew more than 8% to over 100,000. According to the World Wealth Report, published by Merrill Lynch and Capgemini, the assets of the wealthy are expected to grow by 7.7% annually to $59 trillion in 2012. Most of this growth is expected to be in rapidly expanding economies like those in the GCC.
As discussed in my previous posts, the regional governments have been very smart in how they spend the wealth generated from increased petroleum revenues. Considerable capital has been invested in critical infrastructure and industry, slowly but surely, transforming the region into a hub for trade, business, tourism, and finance.
The Goldman Sachs Group is one among many of the Western institutions that has been aware of such opportunities. In a recent move, the group launched a new proprietary fund to invest in select assets in the Middle East.
While the US economy has stalled, the global economy has expanded at 4% to 5% annually for the past 5 years, according to the National Real Estate Investor. Worldwide, the number of high-net-worth individuals grew 6% in 2007 to more than 10 million. In the same period the number of people with more than $30 million in assets grew more than 8% to over 100,000. According to the World Wealth Report, published by Merrill Lynch and Capgemini, the assets of the wealthy are expected to grow by 7.7% annually to $59 trillion in 2012. Most of this growth is expected to be in rapidly expanding economies like those in the GCC.
As discussed in my previous posts, the regional governments have been very smart in how they spend the wealth generated from increased petroleum revenues. Considerable capital has been invested in critical infrastructure and industry, slowly but surely, transforming the region into a hub for trade, business, tourism, and finance.
The Goldman Sachs Group is one among many of the Western institutions that has been aware of such opportunities. In a recent move, the group launched a new proprietary fund to invest in select assets in the Middle East.
Thursday, September 4, 2008
Recent Move by a Middle Eastern Sovereign Fund
In early August the Oman Investment Fund, the investment arm of the sultanate of Oman, acquired 50% partnership in Jurys Inns.
Jurrys Inns had been acquired by Quinlan Private, the international private real estate group back in 2007 and since the acquisition, Quinlan Private has expanded the group significantly opening new locations. The recent acquisition by Oman Investment Fund, gives it an equal representation on the Board of Jurrys Inns as Quinlan Private.
State investment funds such as the Oman Investment Fund, are actively seeking international investment opportunities and seek financially attractive deals where the investment can yield superior long-term returns.
Jurrys Inns had been acquired by Quinlan Private, the international private real estate group back in 2007 and since the acquisition, Quinlan Private has expanded the group significantly opening new locations. The recent acquisition by Oman Investment Fund, gives it an equal representation on the Board of Jurrys Inns as Quinlan Private.
State investment funds such as the Oman Investment Fund, are actively seeking international investment opportunities and seek financially attractive deals where the investment can yield superior long-term returns.
Sunday, August 24, 2008
Booming Economies and Increased Expenditure on Luxury Goods
When levels of expenditure on luxury goods rise, it is usually an indication of booming economies. Money has to be abundant before citizens can afford the luxury of private jets or residential palaces. Such is currently the case in most Gulf Cooperation Council (GCC) countries.
US financial institutions are well aware of this wealth effect. Citigroup, for example, was recently said to be discussing eight to ten private aircraft financing deals worth more than $400M. Private jet purchases in the GCC have doubled in the last 24 months from 43 in 2006 to 86 in 2008.
Purchases that might have seemed too extravagant a few years ago are now becoming common place in the Middle East. This all is good news to sound and strong US businesses. The cash rich GCC states have been a major source of capital for Western conglomerates in today’s hard economic times.
US financial institutions are well aware of this wealth effect. Citigroup, for example, was recently said to be discussing eight to ten private aircraft financing deals worth more than $400M. Private jet purchases in the GCC have doubled in the last 24 months from 43 in 2006 to 86 in 2008.
Purchases that might have seemed too extravagant a few years ago are now becoming common place in the Middle East. This all is good news to sound and strong US businesses. The cash rich GCC states have been a major source of capital for Western conglomerates in today’s hard economic times.
Tuesday, July 22, 2008
Middle Eastern Investments in the US Decreasing but Still Strong
According to the National Real Estate Investor magazine, “Global real estate investment by Arab investors will nearly double this year, to $22 billion, say analysts Jones Lang LaSalle. Arab investments in the U.S., however, may lag. Through May of this year, Middle East investment in the U.S. totaled $1.8 billion, far less than the $4.8 billion spent in the first five months of 2007 and $8.2 billion spent for the year, according to New York-based research firm Real Capital Analytics.”
One of the major factors responsible for the dwindling investments by Middle Eastern investors, mostly sovereign wealth funds, in the US is the fear of persistent economic downturn. The depreciating US Dollar is another factor contributing to reduced interest in US assets and real estate. Arab investors are finding more compelling opportunities in the emerging markets such as India and Eastern Europe. Arcapita, an investment firm managing capital of wealthy families in Bahrain, is an example of institutions active is such regions.
As for their US investments Arabs have had a policy shift, preferring to participate indirectly through private equity firms and other alternative vehicles. Despite the pessimism, however, capital has not stopped to flow into the US. GE, for example, recently announced that Mubadala Development Company is likely to become one of GE’s largest 10 institutional investors through the partnerships that the two are forming. Among other projects, the companies are working on initiatives in clean energy, finance, and aviation. The recent $800M purchase of a 75% interest in the Chrysler Building in New York by the Abu Dhabi Investment Council is another case in point.
These investments are taking place in an environment where most of the world’s largest sovereign wealth funds are scaling back their exposure to US Dollar. Middle Eastern sovereign funds have invested in several troubled US companies recently and have witnessed the value of their investments diminish. Moreover, they are not the only ones that are seeking alternative investment targets in the emerging markets and in Europe. The Chinese government fund is also in talks with European private equity firms in an effort to diversify and to reduce its exposure to the US Dollar. Furthermore, some private equity funds are instructed to increase their exposure to natural resources as a means of reducing their vulnerability to the US Dollar decline.
Some believe that the US Dollar is not very likely to decline much further against the Euro. That can be a part of why the Abu Dhabi Investment Authority has not yet taken any major steps away from the US Dollar. To others, however, it is only prudent to diversify away from US denominated assets to reduce the potential damage from “catching a falling knife.” While the US economy might be suffering from a credit crunch, falling real estate prices, weak currency, and inflation, it is still the largest economy in the world and that is not expected to change anytime soon. When the dust settles and the real estate and credit markets correct themselves, the US economy shall turn around to a healthy growth.
One of the major factors responsible for the dwindling investments by Middle Eastern investors, mostly sovereign wealth funds, in the US is the fear of persistent economic downturn. The depreciating US Dollar is another factor contributing to reduced interest in US assets and real estate. Arab investors are finding more compelling opportunities in the emerging markets such as India and Eastern Europe. Arcapita, an investment firm managing capital of wealthy families in Bahrain, is an example of institutions active is such regions.
As for their US investments Arabs have had a policy shift, preferring to participate indirectly through private equity firms and other alternative vehicles. Despite the pessimism, however, capital has not stopped to flow into the US. GE, for example, recently announced that Mubadala Development Company is likely to become one of GE’s largest 10 institutional investors through the partnerships that the two are forming. Among other projects, the companies are working on initiatives in clean energy, finance, and aviation. The recent $800M purchase of a 75% interest in the Chrysler Building in New York by the Abu Dhabi Investment Council is another case in point.
These investments are taking place in an environment where most of the world’s largest sovereign wealth funds are scaling back their exposure to US Dollar. Middle Eastern sovereign funds have invested in several troubled US companies recently and have witnessed the value of their investments diminish. Moreover, they are not the only ones that are seeking alternative investment targets in the emerging markets and in Europe. The Chinese government fund is also in talks with European private equity firms in an effort to diversify and to reduce its exposure to the US Dollar. Furthermore, some private equity funds are instructed to increase their exposure to natural resources as a means of reducing their vulnerability to the US Dollar decline.
Some believe that the US Dollar is not very likely to decline much further against the Euro. That can be a part of why the Abu Dhabi Investment Authority has not yet taken any major steps away from the US Dollar. To others, however, it is only prudent to diversify away from US denominated assets to reduce the potential damage from “catching a falling knife.” While the US economy might be suffering from a credit crunch, falling real estate prices, weak currency, and inflation, it is still the largest economy in the world and that is not expected to change anytime soon. When the dust settles and the real estate and credit markets correct themselves, the US economy shall turn around to a healthy growth.
Saturday, July 12, 2008
Global Financial Turmoil and Glimmer of Hope in the Middle East
In recent months global banks have increasingly shifted their resources and management to the Middle East in the face of financial turmoil elsewhere. Deutsche Bank was the latest to announce the move of senior banker, Christophe Laing, to the Dubai International Financial Center. Laing is head of Deutsche Bank’s equity capital markets for the Middle East and Africa as well as Eastern Europe.
Financial institutions around the world have written down around $400 billion as a result of the credit crunch and have raised $300 billion to repair their balance sheets. Shifting to the Middle East and committing to the oil-rich region is an obvious move to become closer to the riches of funds and governments in the area.
Others who have recently appointed senior management to the Middle East are Lehman Brothers, Citi, and Merrill Lynch. The major incentive is being close to sovereign wealth funds and their seemingly endless pool of capital. Estimates show that these funds shall grow to $15 trillion by 2016.
Financial institutions around the world have written down around $400 billion as a result of the credit crunch and have raised $300 billion to repair their balance sheets. Shifting to the Middle East and committing to the oil-rich region is an obvious move to become closer to the riches of funds and governments in the area.
Others who have recently appointed senior management to the Middle East are Lehman Brothers, Citi, and Merrill Lynch. The major incentive is being close to sovereign wealth funds and their seemingly endless pool of capital. Estimates show that these funds shall grow to $15 trillion by 2016.
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