28 January 2008

Dubai: A recession in the US and the developed markets could benefit the GCCGCC economies and the regional stock markets, according to Dubai-based Damac Securities.

Contrary to the general belief that the Gulf countries could be adversely affected, Hany Hussain, Vice-President and Head of Asset Management and Equity Research, Damac Securities, said the regional economies stand to gain from the slowdown in US and the Western countries, while the regional stock market correction last week was just an overreaction.

"In our opinion, this move will support the regional equities over the short- and medium-term by reducing the cost of funding. Furthermore, we expect dollar-denominated funds to increase their exposure to the regional stock markets in order to benefit from the highly-anticipated revaluation of the UAE dirham," he said.

In the event of a prolonged US recession, he said the Gulf funds would continue to acquire foreign assets at more attractive valuations.

For example, the Abu Dhabi Investment AuthorityAbu Dhabi Investment Authority recently acquired 4. 9 per cent of Citigroup for $7.5 billion while Saudi Arabian Monetary Authority (Sama)Saudi Arabian Monetary Authority (Sama) is rumoured to have acquired a significant stake in UBS, other troubled Western banks such as the Northern Rock have reportedly getting fresh capital infusion from Gulf investors.

The Gulf's strong liquidity position is expected to stand as a strong buffer against any impact of the US recession reaching the Gulf shores. In 2007, the combined budgets surplus of the governments of the GCCGCC is expected to reach $150 billion, about 10 per cent of the total GDP of the countries of the GCCGCC.

By Babu Das Augustine

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