By Tom Arnold
Company chief says banking resources more than enough to weather storm.
The worst of the effects of the global credit crisis on Gulf economies have already hit, according to Ziad Makkawi, chief executive officer and founder of Dubai-based asset management firm Algebra Capital.
The depth of resources available to the banking system in most emerging markets, especially in the region, were more than sufficient to weather the scale of the crisis and had so far been used judiciously to manage the turmoil, said Makkawi on Tuesday.
But the medium term would prove challenging to those economies whose currencies were pegged to the US dollar, as was the case with all GCC states bar Kuwait, or whose assets and reserves were mostly in US currency, he warned.
Vigilance and forward planning was required to guard against hyperinflation, which had become an increased risk following measures by US authorities to print money to re-inflate the economy and buy-out or become the creditor of last resort across industries, he said.
“We at Algebra Capital are optimistic that the worse is behind us when it comes to the region's economies,” he said in a release by the fund manager.
“However, it is likely that we will see further downside pressure and increased volatility on asset prices as global markets go through a second round of de-toxification.”
A lack of transparency and short-comings in the regulatory environment, such as effective bankruptcy regimes, would need to be addressed in the very near future to re-establish trust and confidence among investors, he warned.
If the value of crude oil could be maintained above $70 a barrel, budgets could be pushed back into surplus accumulation mode. Budget deficits were already kept to a minimum thanks to $50 oil, he said.
The Middle East North Africa region remained one of the fastest growing areas in the world with substantial wealth, relatively low levels of leverage and falling inflation, Makkawi added.
“We are seeing tremendous investment opportunities,” Makkawi said. “Both conventional and Shari'a-compliant, in the current market environment.”
Algebra Capital is based in the Dubai International Financial Centre, a self-regulating investment zone set up in 2004.