Soros and hedge funds pessimistic but not on the Gulf States

As one of the world’s leading hedge fund managers George Soros has a lot to gain by stirring up market gyrations. But a new Deutsche Bank survey of a thousand hedge fund investors found 80 per cent of participants bearish. Soros is no longer alone, indeed for a contrarian he is frighteningly close to the consensus, but he saw a recession coming way back in early 2006.

It was then he said a US housing bubble would burst and cause a recession. That looks like common sense with hindsight but it was dismissed by the consensus of analysts at the time. So what is Soros saying now?

Well he says the ‘accute phase’ of the global credit crisis is over, and ‘now we have to feel the effects’. He told BBC radio that meant a recession in the US and ‘most likely in England also’.

Turning back to the 1,000 hedge fund managers in the Deutsche Bank survey with $1 trillion in invested assets – exactly how much the IMF estimates banks have lost in the sub-prime crisis – we should not be surprised to learn that the US and Europe are bottom of the league table for favored regions, just ahead of troubled South Africa.

More surprising perhaps is that the Middle East emerges as the most favored destination for investment, ahead of Asia ex-Japan. Arabian money is probably therefore likely to stay in Arabia, if the consensus of global hedge fund investors is that the region is the top place to put money.

There were rumors about George Soros buying UAE stocks after the crash in 2006 – and if he did then perhaps he is holding on to them. And I must say that local p/e ratios are attractive and that investment for a bull charge this autumn looks a good play.

How long this share price upsurge – along with real estate which is still cheap by global standards in major cities – continues must depend critically on the oil price. But then Goldman Sachs, these days more of a hedge fund trading as an investment bank, is right then $150-200 oil over the next 18 months should give a very favorable backdrop to investments in the Middle East.

Of course, for every boom there has to be a bust. But for busts hedge fund managers are pointing their fingers at the US, UK and some European countries. The boom times for the Gulf States have only just begun though the rises from here may start to look scary.