Patience will pay dividends for Arabian investors

How boring to have to convey the message that patience is likely to pay dividends for investors in 2010. But being dynamic and opportunistic can be a hell of a bad idea if you are jumping in the wrong direction. Better to wait and see where the markets are going first.

Take the FTSE for example: year-end pundits predicted an upside of a few hundred points for 2010 but conceded market volatility would be considerable. So you would see your fortune fluctuate substantially, and lose some nights’ sleep, all for a few lousy percentage points in gain, assuming that the consensus is right.

Market timing

A patient investor would wait for one of these market pull-backs and then either ride a mini-cycle and sell rather quickly, or hold and still have a bigger gain at the end of the year, assuming the consensus is right.

But what if the consensus is wrong? After such a long rally from the lows of last March a big correction is still possible. And if global economies go into a double-dip recession later this year stocks could very well end up at a much lower level than today. Again hardly a reason to risk your capital in stock markets now.

You could argue that certain stock market sectors – energy or precious metals, for instance, will outperform others, or stock pick if you have some special insight. That is almost certainly true but these stock prices will still be affected by the wider market moves.

Trading sideways

Perhaps 2010 will be a year of a sideways trading range in stocks but with high volatility. That is a historic pattern observed previously after periods of violent movements like we have seen over the past two years.

To me this feels like the mid-to-late 1970s. That was the era of high inflation, high energy prices and the precious metals’ price spike. Nominal property prices consolidated but lost ground in real terms due to inflation. People then predicted the end of the US dollar but it refused to die.

Sat in Dubai that makes for an interesting outlook despite the need for patience right now. Arabia has already had its big investment correction, although it might not yet be quite at the bottom if global markets tumble again.

Local not global

So if you think of higher oil prices, low property prices and bombed-out stock markets, the local opportunities for Arabian investors that are coming up could be worth the wait. And perhaps local investments will be far more successful than global investments over the coming few years as in the late 70s.

Arabian stock markets crashed in late 2005 and are thus further ahead in the recovery cycle than the advanced economies, and local property crashes have been far deeper and faster than anything seen in the West. Yet the oil price is around $80 a barrel which is great for local cash flow, and much higher than the price that fueled the last asset price bubble.