Oil price moves leave Gulf investors unfazed

Oil price moves leave Gulf investors unfazed

Oil price moves leave Gulf investors unfazed
Image edited by arabourse.com
Thomson Reuters

DUBAI (Reuters) - Fluctuating oil prices may keep major producers and consumers awake at night, but Gulf investors flush with cash from recent oil price spikes say market volatility is barely causing a ripple on their horizons.

Investors in the region are adopting a sanguine attitude toward crude prices, stemming from the security of knowing much of the major revenue gained from prices hitting lofty peaks last year has not flowed into Gulf economies yet.

And while volatile oil prices may not be at record levels, values in excess of $60 per barrel are keeping the coffers bulging in Gulf economies.

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“If you look at the current account balances of the GCC countries, excess revenue from the increase in oil prices hasn’t even entered those economies yet,” Nasser al Shaali, CEO of the Dubai International Financial Center (DIFC) told Reuters Middle East Investment Summit this week.

“Only about 10-15 percent of it has so far,” he added.

A marked shift has also been seen in the types of investments made now in various sectors including real estate, infrastructure, telecoms and banking, compared with assets such as stocks and bonds bought with cash from earlier oil booms.

The value of infrastructure projects planned in the region topped $1 trillion in 2006, according to the Middle East Economic Digest database.

“People want to put this (money) in hard assets now. They have learned their lesson. Before they put it in very speculative stock markets or just had it asleep in bonds and Treasuries,” Atif Abdulmalik, CEO of private equity group Arcapita said.

Volatility has been the hallmark of Gulf stocks, with four of the region’s seven markets losing more than 35 percent of their value in 2006.

Some noted that stock markets were perhaps maintaining the strongest link with oil prices.

Henry Azzam, chairman of the Dubai International Financial Exchange put the correlation with Saudi Arabia as high as 90 percent.

“It (oil) affects the morale and confidence. If people are watching it, they believe it’s an important area,” Azzam said.

DIFC governor Omar bin Sulaiman who leads the financial services strategy of the Gulf Arab emirate said there were differing levels of linkage with oil in Gulf economies.

“These countries are really investing in different industries, including oil and the value chain of that, upstream, downstream,” he said.

“The multiplex of their investment and wealth is coming. Yes, it’s been generated from oil originally, but its moving to different areas that are not heavily dependent on oil,” he added.

 

Sulaiman also said wealth within the private sector was not linked directly to oil, adding that investors in enterprises within the region could realistically move their operations anywhere in the world.

“That’s not linked to oil, that is linked to the global economy and what we’re doing in the region and how we are integrating.”

As part of the push toward integration with the wider economy, Sulaiman told Reuters on Tuesday that Dubai wants to create at least two of the world’s top 10 financial services institutions by 2015.