Latin Finance - March/April 2009 - 15

mid-east investment markets, pushing some countries towards recession. The IMF expects GDP growth of 3.6% this year in the GCC, down from 5.6% in 2008. “They have the making, surpluses and fundamentals to withstand the worst of storms and bounce back faster than other economies,” says Arabi, speaking of the GCC. Gulfmena has an absolute return driven multi-strategy investment focused solely on Arab/GCC markets. “Stabilization of oil prices above $35 is key to potential short-term economic recovery and any turnaround in oil prices represents a massive boost to consumer and investor confidence and would translate into an immediate bear market rally across most GCC countries,” adds the Dubai-based investor. Oil traded in a $35-$40 range late February. Buyside Reluctance Exposure to LatAm thus far has been largely limited to retail, which owned several kinds of BRIC vehicle. High net worth individuals may also have exposure to LatAm in their portfolios including investment authorities and regional sovereign funds. However, the region is otherwise off the radar screen and commercial synergies are seen limited in the short term. Many local investors are too severely wounded by the crunch to be able to see beyond the existing portfolio. Almost all are in wait-and-see mode – at least for the next 6-12 months – but the smart Gulf money appears to be riding on a local revival and longer-term deployment cross-border. “Everybody is hesitant to make decisions right now, given the market environment, the mood is very somber,” says Jawad Mian, portfolio manager at Rasmala Investments, which invests in Brazil and manages about $1.2 billion. Asked whether many other Gulf funds are looking at LatAm, Mian says, “They should have more interest, they should have more allocation. It’s something that I think would pick up over time.” He adds that big sovereign funds like ADIA are weighing LatAm, but most will be introverted for the foreseeable future. “We’ve looked at agribusiness, we’ve actually looked at Mexican housing, and retail and consumer [sectors],” says Mark Cutis, CIO of the special situations group at ADIC. the end of 2007, says CFR. “These funds now look likely to shrink in 2009, as the price of oil has fallen to the point where many Gulf economies will need to draw on their foreign assets to sustain their current level of imports,” says CFR. It predicts a “much more subdued pace of future asset accumulation” over the next couple of years. At an oil price of $25 a barrel, the Gulf’s external position would fall to just over $1 trillion, according to CFR. CFR generally expects the Gulf to shift towards liquid assets this year. The one possible exception is Saudi Arabia, which was rewarded for holding a dollar-andbond-heavy portfolio. “While the Saudis are unlikely to change, they have a large enough buffer of liquid assets that they potentially could reallocate a portion of their existing portfolio toward “risk” assets,” says CFR. The report assumes that 20% of the Saudi Arabian Monetary Authority’s (SADA) foreign securities portfolio is in equities, which it does not mark to market, while 80% is in bonds. The dollar accounts for 80% of its total portfolio of non-reserve foreign assets. SADA has more than $500 billion in assets, says CFR. Major sovereign funds all have a large allocation to global equities (50%-60%) and another 20%-25% in alternatives (hedge funds, real estate, and private equity), says CFR. ADIA – which CFR says that, combined with the Abu Dhabi Investment Council (ADIC), manages $300-$400 billion – has more exposure to emerging economies than others. The credit crunch wrecked GCC stock March/April 2009 LATINFINANCE 15

Latin Finance - March/April 2009

Table of Contents for the Digital Edition of Latin Finance - March/April 2009