Still a challenging environment for investors

So far 2002 has not been a great year for investors with major stock markets volatile but directionless, and an imminent hike in interest rates hanging over bonds.

Alternative investments do not look much brighter. Bricks-and-mortar looks over priced in the Western markets, after a prolonged period of low interest rates. Emerging markets remain risky and hedge funds a bit scary.

Even the US dollar has been under pressure in recent months, so deposit accounts are not that attractive either. This is all a bit strange in view of the fact that the US economy appears to have turned the corner and be moving out of recession, but this reflects the overvaluation of US shares by any historical standard.

To be fair some analysts, for example Credit Suisse, do see a reason to selectively acquire core value companies in certain sectors. But for the main part, investors are left scratching their heads, and risk getting their fingers burnt on perennial disappointments like gold and silver.

For the time being the risk is mainly on the downside. It is easy enough to come up with Armageddon in the form of spiraling oil prices and an escalation of the already bad situation in the Middle East. It is less easy to come up with a dream scenario of rising company profits, inflation-free growth and another share price boom.

Luckily for Middle East investors they have a logical alternative to western capital markets in their own backyard. And indeed those that heeded the message from this column six months back, and plunged into regional stocks, will have done very well with gains not unlike those of the Tech boom days.

However, a number of regional brokers are suggesting that now could be the time to take profits and retreat for the summer. With share prices now much higher, and discounting high dividends, the professionals probably have a point.

On the other hand, high oil prices and the fact that Arabs are now spending their money at home and not abroad, give a good reason to believe that GCC stock markets at least may surprise on the upside. So maybe withdrawing at this stage would be an expensive mistake. Besides where else can you put your money?