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Thu 17 Mar 2011 12:51 PM

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Gulf states set to benefit from tumbling dollar

Fall in the dollar makes the region more attractive to investors, says JP Morgan strategist

Gulf states set to benefit from tumbling dollar
Qatari investor stock exchange

The slump in the US dollar may help to partly offset the
impact of uprisings gripping parts of the Gulf on investment and tourism, a
leading investment strategist has said.

Gulf states pegged to the greenback may benefit as foreign investors
and tourists seek to take advantage of cheaper property rates and cut-price
holidays, said Cesar Perez, Chief Investment Strategist for JP Morgan Private
Bank EMEA.

Dubai, which has sidestepped the unrest sweeping Bahrain and
Oman, may see a rise in investor interest as a comparative safe haven, Perez
said.

“The dollar is normally seen as a safe haven; this time around
it has not been the case. Out of the turmoil one of the beneficiaries will be
Dubai as it will be seen as a hub and even more than before,” he told Arabian Business.

“A cheaper US dollar [will] increase the amount of interest
in Dubai as investors from Europe, Asia and the UK find that UAE investments
provide a greater return.”

The dollar last week fell to $1.4035 against the Euro, marking
depreciation of more than eight percent this year alone. The US dollar has
reached its lowest levels since November 2010, said Chris Canning of London’s
First Rate FX.

“Previous occasions when the US dollar was weak have
coincided with periods of substantial economic activity in Dubai,” he said.

Fear and uncertainty typically drives market participants to
favour the safety of the US dollar over currencies like the euro, however, so
the slide may be short-lived, Perez said.

“In the short-term [the dollar] might go a bit lower [but]…
I wouldn’t sell the dollar today,” he said.

“Events such as the earthquake and tsunami in Japan have
reminded us that the US dollar is quite often bought at times of worldwide
insecurity,” Canning said. “The recent events in Japan has urged investors to
buy in.”

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Shahab Jafry 9 years ago

As beneficial as the dollar decline may be in these times, which most analysts are describing as transitory, isn't there a deeper malaise also that comes to pegged currencies with the decline so deliberately engineered in the dollar since qe2?
With the fall in the value of the dollar, and subsequent decline in dirham/dinar/riyal values in the intenatinoal market, wouldnt inflation become a pressing concern in places like Dubai, which are overwhelmingly import economies.
With wages not exactly rising and prices rising because of increasing import costs brought about by weaker currency, wouldnt places like Dubai be more difficult to live in? Not critiquing, just inquiring.

dawood 9 years ago

on the other hand there is a pegging system in some middle eastern countries such as Jordan, UAE, Saudi Arabia.