Gulf states to invest heavily to cover U.S. assets
Wednesday, December 3, 2008 Free Headline Alerts
ABU DHABI — The Persian Gulf states were expected to pump hundreds of billions of dollars to save their investments in the United States.
Western and Gulf analysts said such countries as Kuwait, Qatar, Saudi Arabia and the United Arab Emirates were preparing to help the U.S. economy overcome the credit crisis. They said the Gulf Cooperation Council states have invested $900 billion abroad since 2003, about half of it in the United States.
"The current turmoil is likely to spur interest in the safety of U.S. government debt," the Saudi-based Samba Financial Group chief economist Howard Handy said. "However, those Gulf funds that emphasize longer term investment strategies may be attracted to the comparatively cheap valuations of U.S. and European equities, and are likely to gradually build up their holdings of these assets in the period ahead."
A report by Samba, titled "Tracking GCC Foreign Investments: How the Strategies are Changing with Markets in Turmoil," said GCC states were purchasing U.S. Treasury bills as well as corporate securities.
Handy said GCC countries would likely take advantage of falling share prices in Western stock markets to purchase companies and other assets. He said GCC foreign investments would drop to about $430 billion from June 2008 through June 2010.
"The outlook for oil prices remains very uncertain, but our current expectation is that prices will average around $ 60 a barrel in 2009, not far below the average for 2007," Handy said. "A slight increase to around $ 75 a barrel is envisaged for 2010 as global demand begins to recover."
GCC states have invested $2.2 trillion by September 2008, a report by Securities and Investment Co. said. The report said $500 billion of the investments have already been launched, although could be suspended should the price of crude oil continue to fall.
"The GCC has witnessed ample evidence over the past five months that its financial markets and economies are very much a part of the global economy," Security and Investment chief executive officer Anthony Mallis said.
"However, we believe that although the region may yet experience further pressure, even pain, in the short term, the medium to long-term growth story remains robust. The economic structure of the region is fundamentally different to those of developed and other emerging markets."