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Gulf countries shifting funds to emerging markets

GCC countries are realigning their investment plans and ploughing their oil wealth in emerging markets instead of the western developed countries, says the latest report from a regional research body.

April 16, 2006 | Gulf News | Stanley Carvalho

https://gulfnews.com/business/sectors/markets/gulf-countries-shifting-funds-to-emerging-markets-1.233112

GCC countries are realigning their investment plans and ploughing their oil wealth in emerging markets instead of the western developed countries, says the latest report from a regional research body.

“The DP World debacle witnessed in America and currently unfolding in India should not and most probably will not deter the GCC’s foreign investment plans, but may herald realignment,” says Emilie Rutledge, economic researcher at the Dubai-based Gulf Research Centre (GRC).

“There is little doubt that the anti-Arab sentiment experienced by DP World will, to a certain extent, deter other GCC investors from seeking to acquire US assets. But more generally, Gulf governments are no longer happy to simply hold US Treasury bonds. Today, they are more interested in the return on their investments, and are more willing to take calculated risks and invest in key Asian growth markets such as China and India.”

For example, the Kuwait Investment Authority (KIA) is currently in the process of realigning investment in Organisation for Economic Cooperation and Development countries to emerging markets, noted the report, quoting Bader Al Sa’ad, KIA’s managing director.
The Gulf states plan to invest more revenues from oil sales in Asian countries to strengthen ties with their fastest-growing energy customers.

The Abu Dhabi Investment Authority (ADIA) and KIA is in the process of buying 10 per cent of the Industrial and Commercial Bank of China for a reported $2 billion. ADIA, one of the world’s richest investment bodies, is known to be looking to buy more assets in emerging markets, such as Chinese insurance and oil and gas companies as well as Indian financial services firms.

Dubai’s Istithmar is refreshingly open with regard to its strategies and acquisitions and has acquired a significant shareholding in SpiceJet, a leading low-cost airline in India, which was launched in May 2005. But despite some recent setbacks like the DP World case, the report suggests that the GCC countries should focus on acquiring assets abroad.

“GCC governments can and should do several things with current windfall revenues and surplus liquidity in order to mitigate the risks of future oil price shocks. The period of protracted economic stagnation suffered by the region for much of the 1980s and 1990s must not be forgotten. Apart from investing in infrastructure and human capital and moving into the value-added downstream energy industries, the GCC should concentrate on acquiring overseas assets.”

Oil prices ‘will stabilise this year’

Current trends indicate demand and supply will increase, says expert

by Mohammad Ezz AL Deen | January 16, 2006

During the Gulf Research Centre’s third annual conference recently, Anas Alhajji, moderator of the Gulf Energy Program-me at the GRC, said he expects oil prices to stabilise in 2006.

Prices will only decline significantly, he said, if the US falls into recession as a result of a decline in government spending. “The soaring price in 2005 was due to the market fundamentals of limited supply and rising demand. Opec members ran out of marketable excess capacity, and non-Opec production was lower than expected, while global demand especially in the US, India and China continued to grow,” Dr. Alhajji said. Current trends estimate that both demand and supply will increase in 2006. However, oil prices will depend on the size of the additional production capacity, he added.

According to experts at the Dubai-based GRC, the Gulf is likely to experience a period of high growth in 2006, a modest decline in oil prices, significant political developments, rising tension, and a slow shift in focus towards Asia in the realm of international relations.

Emilie Rutledge, econ-omist at the GRC, said that high oil prices and the increasing global demand for oil triggered a boom for the GCC economies. The region’s aggregate GDP rose by 5.3 per cent, stock markets grew by 79 per cent and market capitalisation touched $1.1 trillion, an increase of 110 per cent over 2004. The aggregate GCC trade surplus stood at $253 billion in 2005, and imports of good and services rose by 20 per cent, she said. “Regional governments are generally aiming to avoid over-dependence on oil through economic diversification strategies, labour nationalisation policies and the privatisation process,” she said.

Vital issues
GRC Chairman Abdul Aziz Sager highlighted important issues in 2005, including the continuing political reform process that has firmly implanted itself in the region, the effects of the unprecedented increase in oil prices on the GCC economies, as well as the numerous security challenges that confront the region. “Despite the economic and strategic importance it represents, the developments in the Gulf region during 2005 were not reassuring as far as the status of Gulf security is concerned,” Sager added.

The GCC defence budget amounted to $34 billion during 2005, a $4 billion increase over 2004. The budget growth could be related to higher revenues because of oil prices, said Mustafa Alani, Director of the Security and Terrorism Programme at the GRC.