Why don't Gulf sovereign wealth funds invest at home?

Why have Gulf sovereign wealth funds stood aside while their local stock markets have crashed this year? They rushed in a year ago to buy US financials and got their fingers burnt. Why have they not done the same at home and at least bailed out a few local companies and individuals?

That is a bit cynical. But yesterday I sat watching the DIFC Week conference in Dubai and could not help but think that the best investment opportunities for the SWFs are closer to home.

Oil prices

There was an interesting coven of oil experts who reckoned $60-70 oil was on the cards for 2009 while the audience voted $50 more likely. Yet the point is that with global bailout packages in the multi trillions of dollars now, the oil price is well supported going forward – quite apart from the supply fundamentals which remain unchanged.

Moreover, we have felt the slightly belated stirrings of the Gulf governments into action in response to the global financial crisis. Not that they have much to worry about – their banks were too dim to become involved in the rocket science of derivatives.

But in the age of the stimulus plan Gulf governments still need to do their part – if only because the wheels have fallen off the global debt markets making it tough and expensive to raise funds for local expansion plans. The UAE’s new Emirates Development Bank is the first bank bailout in the region in coming to the rescue of Amlak Finance and Tamweel.

Short correction

However, a short, sharp correction is always useful in any market, purging the least productive projects, sacking the bottom quartile of staff and wiping out the weakest companies. The strong can thrive better without the hangers on.

If this is all that lies in stall for the Gulf region then it really is a buy, and the sovereign wealth funds ought to be in there now, propping up the beleaguered local stock markets.

Investors have temporarily lost their sanity and liquidity while the SWFs can take a longer term view and should profit handsomely in the process. Who can really argue that the Dubai Financial Market at an 70 per cent discount to earlier this year is not a buy? Ditto Dubai property.
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