(MENAFN- Khaleej Times) With the exception of kuwait the rest five gulf countries have their currencies pegged to the dollar.
the prospects of a stronger dollar in the backdrop of a recovery in the us bodes well for gcc currencies that are pegged to the greenback an expert from fidelity worldwide investment said on monday.
“one of the major global themes is the performance of the us dollar which is expected to strengthen particularly against emerging market currencies. as most gcc currencies are pegged to the us dollar they stand to benefit from the strengthening us dollar in the short to medium term” tom stevenson investment director – personal investing at fidelity worldwide investment told khaleej times.
with the exception of kuwait the rest five gulf countries have their currencies pegged to the dollar. a strong greenback will underpin us based dollar assets. therefore economic recovery strengthening of the dollar and shale oil revolution have positive implications for gcc investors he said.
“the gcc was among the stand-out emerging market economies over the last couple of years as global investors became more discriminate in picking the ‘winners of tomorrow’. going forward the region’s economies will be further supported by strong structural growth and increased government spending on infrastructure and social sectors. in this context one does need to be aware of global themes as they do have some important local consequences” said stevenson.
he pointed out that after an extended period of weakness in the decade to 2012 the structural outlook for the us dollar is now brighter. “in particular all the key factors that were responsible for dollar weakness look to have turned in a more favourable direction.”
he argued that the sizeable us current account deficit has been reduced largely due to the shale energy boom which is slashing the country’s energy import costs. “the return to economic growth is helping to improve the us budgetary position and the strengthening recovery has also put the us on the verge of becoming the first major economy to effectively begin tightening monetary policy. these three key factors argue for a stronger dollar in the years ahead.” with commodity prices weakening and budget deficit narrowing president obama seems better positioned to end his terms with a surplus said stevenson. he said the shale oil revolution boded well for the us economy as the country is poised to be a net oil exporter by 2020.
“shale exploration has implications beyond us borders and could be a material long term threat to middle eastern dominance of the global energy market” said stevenson. shale deposits are more diversified geographically than traditional oil and gas deposits which are concentrated in this region. the us is far ahead of all other countries in terms of exploiting its shale reserves so in the short run trends there will dominate discussions. one of the most important effects might be reduced demand for other energy sources he explained.
“within the us we have already seen lower demand for coal for electricity production. from a global perspective greater energy independence from the world’s largest economy and the possibility of future us energy exports could put downward pressure on global energy prices” said stevenson.
“oil is less vulnerable to a slowdown in emerging markets (and particularly china) relative to other commodities but the shale energy story is a game changer” he said.
stevenson cautioned investors to take a selective approach as many emerging countries face some structural challenges. he said the uae and qatar markets had performed strongly over the past year due to the improving fundamentals of the economy and the renewed interest of foreign investors. the inclusion of 19 stocks from the uae and qatar in the msci emerging market index this month was an indication of how much this region has developed in a short period of time.
however the emerging market index is only around 11 per cent of the global index and the combined weight of the uae and qatar in the revised emerging market index is just above one per cent which means that the region is a mere drop in the ocean for international investors. “so while being at the ground floor of this movement is indeed exciting investors need to recognise that there are many other more mature markets that offer more predictable returns and reduce the risk of having all of one’s proverbial eggs in one basket.”
—issacjohn?khaleejtimes.com
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