Fight or flight dilemma for US investors, is the UAE the answer?
Posted on 23 July 2011 with 6 comments from readers
For nations swept up in the revolts and revolutions of the Arab Spring this year there has been an understandable flight of capital to safe havens. Keeping all your money in a country that is falling apart politically and economically is not prudent.
But many US investors feel the same way. If Armageddon is coming for the US dollar and a second financial crisis for the Wall Street then why stay fully invested in the good old USA?
The eurozone sovereign debt crisis is a reminder that jumping out of the frying pan and into the fire is always something to avoid.
Home sweet home
The USA is generally perceived as a well-regulated, safe haven for many foreign investors so should its own citizens really be so concerned if things do not look much better elsewhere?
This is the theme of the Agora Financial annual conference in Vancouver next week where ArabianMoney editor and publisher Peter Cooper will make a presentation on the United Arab Emirates as one rather unexpected choice for foreign investors looking to diversify risk.
At first sight investing in the UAE after the considerable upheavals of the Arab Spring, which is far from settled, might seem madness. But the two stock markets of the UAE are very low, and the country is in an economic recovery that has actually benefited from the Arab Spring.
Tourists who could not visit Tunisia or Egypt came to the UAE. Arab capital flowed into the UAE banks, allowing interest rates to fall and supporting real estate prices. And most significantly oil prices stayed high despite a global economic slowdown and are presently again knocking on $100-a-barrel.
Oil money
It is of course the cash in-flow from oil revenues that is most significant and a considerable bonus for all the Oil States of the Arabian Gulf.
The GDP growth rate for the UAE this year has been revised up from three to five per cent and the biggest regional economy Saudi Arabia should increase its GDP by a Chinese-style seven per cent.
This money is being reinvested locally. The rulers do not want to see the Arab revolts spread into their territory and so there has to be the carrot of higher spending to keep populations happy.
The sums of money are huge, and highly stimulatory to local economies. Saudi Arabia is the biggest spender but the UAE suppliers and contractors are going to benefit almost as much as the guys who do the work import the goods and services.
Now it does not take much common sense as a US investor to see the logic of investment in a region with bombed-out stock markets (and the UAE bourses have still not recovered from the crash of 2006) when there is an economic recovery in progress that shows all the signs of becoming the next oil boom.
Arabian Switzerland
US investors will undoubtedly be weary of a region like the Middle East but they need to differentiate and acknowledge that a country like the UAE is something of a Switzerland in terms of being a safe investment opportunity in a troubled region.
And while the National Bank of Abu Dhabi’s ETF is not available to US persons, there are 40 local stocks that are open to foreign investors in the UAE. Many investors have subscribed to the ArabianMoney newsletter as the only local independent source of investment advice (click here).
Besides we are not sure that the US faces economic Armaggedon. It is more likely to be a period of low growth weighed down by higher inflation caused by money printing.
In that scenario the US economy will splutter along while the Oil States will boom as they did in the late 70s. Where then would you want to put your money?
6 Comments posted by readers:
Oh well, good to see the evil foreign funds being advocated to return to the market where even the Central Bank complained of their too easy liquidity!
Short memories, but there again did anybody actually believe the quips about the foreign capital being partially to blame for current economic woes?
Excellent commentary, Peter!
Even under the most optimistic scenario, “the US economy will just sputter along…” as you stated.
For all practical purposes, there is no economic recovery in the US; given the many problems in the US (e.g. fiscal, monetary, regulatory, and structural), it’s highly doubtful that the US could “recover” in 10 years.
The only GDP growth has been from the US government borrowing money, thereby adding to the already unbearable debt burden! In summary, the prudent US investor would be wise to heed your advice, after assessing to what extent investments outside the US would be worthwhile.
Dear fellow investors,
I am a United States (NYC) citizen who has been seeing the writing on the wall about the future of the US economy for many years. In fact, I predicted the fall of the NY Stock market to-the-month back in 2008, and nearly no one believed me then.
Today, I am permanently living in beautiful and very SAFE Bogota, Colombia. After extensive research and travel around the world, I am convinced that Colombia will navigate the coming financial storms better than any other nation on the planet.
It may surprise many to learn that the Colombian economy has actually been the most stable one Latin America for many decades, and nearly always with an impressive rate of growth. But more importantly, Colombia is the oldest constitutional nation in the world after the US, but different from the US and Europe, the efficiency of its banking system is an example to the world, in this “western country” which many abroad would be shocked to learn how sophisticated and educated its labor force is. All of these components are further strengthened by the fact that Colombia has it all; it exports much oil, coal, gas, gold and just about everything else you can think of; including water.
But no less important is the fact that Colombia manufactures and exports nearly everything as well, including sophisticated software (in the country that invented the pacemaker for the heart and Lasik eye surgery). Add to this the fact that Colombia has the most fertile (and greenest) land in the world, where there are no winters to halt cultivation, and what you have is the ultimate “survivalist nation” on earth.
Therefore, my money is already invested in Colombia, and I encourage people from all over the world who are kind, who love culture and respect diversity, to invest in the nation that will most likely outlive all others, as Colombians are a singularly kind, highly cultured and diverse society that knows how to surthrive and that we should now help and protect, for the sake of our human family’s future.
“Today, I am permanently living in beautiful and very SAFE Bogota, Colombia”
Thanks for the interesting post. What about the murder rate, isn’t it over 6 times that of the US?
…Great question. Actually, Bogota is statistically safer than most large cities in the USA, including Washington D.C., Los Angeles, Chicago, Pheonix or Miami. New Orleans, or as it has lately come to be known, “Chopper City” leads the world in per capita murder rate. Moreover, US cities are now enduring great crime waves, most of which is going under-reported by the media, such as the “Flash Rob” phenomenon. Bogota, as most of Colombia, is actually surprisingly safe. Please do not go by crime figures of 20 or 30 years ago (which are too often erroneously re-published on-line). Just come to Colombia and see for yourself how safe it actually is and why it is booming in tourism and investment. In Bogota alone (with a metro pop. of about 11,000,000), there are about 18 new Five-Star hotel projects under way. Just come see why so many foreigners, including many from the United States are now moving here. Bogota is the most complete metropolis on the planet; it is the capital of the only true and stable Western democracy of the CIVETS nations, a highly sophisticated city that is now emerging as the cultural capital of the world, perfect year-round temperatures (hovering around 64 degrees Fahrenheit), and soon to be recognized as the best place in the world in which to invest.
good news from south america is also good news for canada as i post this comment Prime Minister stephen harper is signing free trade agreements with columbia and there neighbour brazil .this break threw agreement shall provide a great ecomical boost to all concered as your readers in north and south america know the Pan Am Games will be hosted in toronto canada in the near future further bonding our countries to gather, the flow of toruisum, manufactured goods, cuting edge science package with our arts including the intoicacting sounds and dancing of south american music.proud to be joining these dynamic friends on the road to prosparity and shared culture values