What do quieter times in Egypt mean for Arabian investors?

While it is always dangerous to call a turning point in a revolution it seems that President Mubarak’s decision to stand down in September has brought the political factions in Egypt to the negotiating table, making a widespread dissolution into chaos before then very unlikely. Indeed, the banks opened yesterday for the first time since the crisis began and people appear to be getting back to business as ususal.

Of course the Arab World will never be the same again. Egypt has always been a trend setter, a bit like California in the USA. The pressure is on the authoritarian regimes of the region to at the very least lighten up and add a semblance of democracy. Over time this could all be very significant, and we can certainly not rule out another show of people power in Egypt if the regime begins to back track.

Capital flight

Between now and September there may well be a further exodus of capital from Egypt and other troubled Arab states. Those with capital are not disposed to gamble on the future and the prudent action is to pull money out, and if things go well put it back later. You cannot expect charity from investors or faith in an uncertain future.

For what will emerge after the September election? Will there be a stable leadership? Or a weak and compromised democracy unable to take strong actions? We will not really know until after that election has taken place. The precedent of the recent Lebanese elections is not very good. Business and tourists do not trust the new Hezbollah led government.

Questions are also being asked about the future of Yemen and Syria, although both states have not been major targets for foreign investment and so are of less interest to investors than Egypt which has been the regional emerging markets success story of recent years with its large privatization program. But if money leaves these countries where will it go?

Swiss deposits

Switzerland is one option. Emerging markets are big depositors in this country, with Indians holding the largest deposits, an astonishing $1.5 trillion. Then again Singapore has been gaining favor. However, the UAE is probably the most obvious choice for Arab investors.

It is also a good time to invest if you are looking for a bargain. The property crash just over two years ago has left a great deal of unsold new real estate, while the local stock markets have been bearish since the 2006 crash. Even local interest rates on deposits of above three per cent are well ahead of US rates.

This process will take time, and if regional governments get their act together on reform it maybe rather insignificant. But with higher global oil prices also underpinning the cash flow of the UAE the time to snap up the local bargains may not be far away, and Arab buyers will now be more of a force in the market place.

Caveat emptor, buyer beware, a major correction in global stock markets could still set back this local recovery, and that usually also comes with high oil prices. Readers of the ArabianMoney newsletter will get the actionable investment ideas that are not featured on this free website (click here).