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Sun 17 May 2009 08:57 PM

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BarCap Mideast head sees recovery signs emerging

Recovery being seen globally, but will take time for confidence to return to Gulf.

Signs of a sustainable recovery are emerging globally, but it will take time for confidence to return to Gulf Arab economies and investors, Barclays Capital's regional head said on Sunday.Fergus McDonald, managing director and head of Barclays Capital's investment banking division, Middle East and North Africa, said there were signs of a recovery in asset prices and credit spreads that pointed to a sustained recovery.

"The view we have is that the economic trends are improving, the shocks to the downside are becoming less, and so we are more positive on the upside that the directional trend is moving upwards," McDonald told Reuters.

"We certainly feel that there will be a sustained global recovery from this point. This is not to say the world is suddenly a better place. It's just that we don't think it's getting worse at this point," he added.

A sustained upward trend in global asset values and oil prices would help Gulf Arab economies to recover quickly, but restoring confidence will take a while before slowing economies in the GCC rebound and state-controlled funds there resume investing, McDonald said.

"We have been through very serious shocks. It's not going to get better straight away, so confidence still needs to come through. I think that will take a little while before companies and sovereign wealth funds prepare to start investing in the kind of way they did in 2007 and 2008," he added.

McDonald said the Gulf region's outlook remained fundamentally tied to oil prices maintaining a recent upward trend that saw oil prices recovering from a low of $32.40 it touched last December to a six-month high of $60.08 a barrel.

"One of the elements that are crucial to those markets is what happens to the oil price. A couple of things that have impacted this market in a slightly different way from other areas in the world, one is oil prices, and (the second is) what has happened to asset values of their sovereign funds," he said.

"To this extent they have been hit on both fronts in the last 12 months," he added.

Gulf oil exporters had amassed enormous surpluses from an oil price rally that started in 2002 and enabled them to invest in building infrastructure at home and snapping up foreign assets to diversify their risk.

Many sovereign funds such as the Kuwait Investment Authority or the Abu Dhabi Investment Authority are thought to have suffered big losses on equity investments in the US as Western markets slumped due to the global financial crisis.

"If we see an increase in asset values and risk assets, and as we seem to see an improvement in oil prices, I think that is going to increase confidence across the whole region," McDonald added. (Reuters)

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