Euro and sterling weakness means Gulf expatriates will focus on dollar-pegged assets
Posted on 17 January 2012 with no comments from readers
Eventually the devaluation of the euro and the pound sterling will throw up some interesting bargains for Gulf expatriates paid in dollar-pegged currencies.
But in the meantime investing in the eurozone or UK is a surefire way to lose money on a devaluing currency and so the focus is on assets priced in dollars or dollar-linked currencies like the UAE dirham.
Imagine if you buy a house in London today for $1 million and the UK pound devalues by 20 per cent, you have lost $200,000. And if you look back to the $2 pound of 2007 and the $1.50 pound of today then there is already a 25 per cent currency loss for dollar investors.
Opportunity cost
So don’t be tempted by higher returns in euros or sterling than US dollars, if you can find such a thing. Your losses could be very great. There is also an opportunity cost. For if you buy and lose out today then you will not be in a position to invest and profit tomorrow.
How low will the pound and euro go against the dollar? The euro was at parity to the dollar at its launch over a decade ago. The $1 pound in a UK economic crisis has been seen in the past.
Now provided you have your money saved in dollars then when these currencies are approaching these levels you can buy the house of your dreams with a currency discount. If you are really lucky that will also coincide with the lowest point of the economic cycle in these countries and the assets themselves will be at bargain prices.
Real assets
In the meantime dollar investors should look at local investment opportunities. The ArabianMoney investment newsletter will be taking a hard look at Dubai real estate again in the February issue and how to invest in oil, a dollar-priced commodity (subscribe here).
We have no doubt that the US dollar will one-day again become a currency to avoid. It has the same structural problems as the eurozone and worse with massive debts and deficits that can never be paid.
That is another reason to be invested in real assets before devaluation and inflation, and not to sit and wait for that dreaded day.
