Not the right time to buy cheap equities and real estate in Arabia
Posted on 16 March 2011 with 2 comments from readers
For those of a contrarian nature the imposition of martial law in Bahrain and the recent high oil price, combined with much lower equity and real estate valuations might look an attractive investment proposition. Saudi investor Prince Al Waleed took the plunge last week buying up $126 million worth of Saudi stocks.
But caveat emptor, there is plenty of reason to think that this is not the bottom of the barrel. Prince Alwaleed’s timing caught the stock market low but that was before the Japanese earthquake last Friday. Now the risk trade is off, and Japanese investors who have been betting heavily in emerging markets are selling down these assets and repatriating money.
Global financial crisis
Moreover, the whole stability of the global financial system looks open to question as an aftershock of what is happening in Japan (click here). A radiation emergency in a city the size of Tokyo, also one of the world’s financial centre, has incalculable implications and all of them to the downside for financial markets.
Arabian bargain hunters also have to consider how the Bahrain state of emergency looks to foreign investors. Will they not want to pull their money out now that there is blood on the streets? And the declaration of a three-month state of emergency does not suggest a temporary phase of a few days hiatus.
The centre of Manama has already been at a standstill for a month. Who knows how long marshal law will last? (click here) Bahrain closed its stock market without making any further statement today. Too bad for investors whose money is now locked up.
On the question of real estate the same caution will apply. Who will want to buy a property in Dubai with all this uncertainty in the air? Some refugees from Bahrain and other Arab nations experiencing unrest, revolution or civil war are renting in Dubai, but buying? That is not something you do in a hurry after fleeing your homeland.
Reverse oil price shock
High oil prices may also soon be over if the world plunges into a double-dip recession as a result of the crisis in Japan. Oil prices are already moving down because of the demand distruction in Japan. And if there is one thing Arabian business hates most it is lower oil prices.
Thus the downward pressure on regional equity and real estate prices can only intensify over the next few months. Perhaps a true market bottom will be reached in the summer but that will only be because uncertainty is at something of a top, or is that now? The ArabianMoney investment newsletter has a strategy for this (click here).
Emirates NBD said ‘brave’ investors should be buying local stocks last week but that was before the Bahrain state of emergency and Japanese earthquake and radiation leaks. Its always the bravest guys who get shot first.
2 Comments posted by readers:
A$..something for the lovers of seeing into the future – uncertainty is high in Tokyo & NE Japan, but the streets of London, Frankfurt & NY are complacent..doubt in America is limited to a widening aggregate of jobless & the underemployed..youth the world over deserve unbridled optimism, refusing to compare their precious lives to any downside reality..a great deal of fear is coming now to occupy the hearts & minds of sane, sober, peaceful folks & families – yours & mine – who trust in governments, armies, markets, & disaster relief..history says “bottoms” DISAPPEAR, & this ugly truth comes w/out a lifeboat..i don’t trust markets or governments, but i trust this site for ease of use & comment, & i trust its informational veracity..a few minutes spent here daily beats scouring the “financial press”
@ Peter: An excellent, well-balanced commentary on a sensitive topic for most folks in Arabia. Without a doubt, the next six months are going to be very turbulent for the global financial markets for a variety of reasons, many of which have been discussed on this blog since 2011 began. This fact, coupled with significant “global uncertainty” (which stock markets hate!) suggests that prudence prevail for anyone contemplating a significant investment, whether in real estate or in equity markets.
@ Tim McKee:
‘Tis True!
Markets and governments are totally corrupt, and can’t be trusted. I also come here to ArabianMoney.net to glean a few snippets of “truth” that is not available in most of the US news media, which is controlled by the US government.
Your response is an echo of feelings from a large and growing segment of the world. Global insurrections are the result of frustration, long-standing inequality, government corruption, and government cover-up. This is the “Fourth Turning” that we, the people of the world, are now experiencing.
As an American who disagrees with most of the policies of the US (including foreign policies!), I’m witnessing the growing unrest and frustration among the population here. Simply stated, governments around the world have proven to the global population that they can not to be trusted. For a fascinating read on the topic of global insurrection and the Gini Index, go here:
http://www.zerohedge.com/article/guest-post-analysis-global-insurrection-against-neo-liberal-economic-domination-and-coming-a