What does a weak US dollar mean for investors?

This summer Gulf residents visiting Europe are in for a nasty shock - the cost of everything will be 30% higher than it was a year earlier. It is not so bad if you have investments in Europe, in dollar terms you have a 30% devaluation bonus.

However, it is clearly a bad time to invest in Europe if you come from a dollar-region like the Gulf. Those sky high house prices are even higher in dollar terms this year.

Probably the best approach is the 'head-in-the-sand' philosophy. If you have to visit Europe then stay in cheaper accommodation and eat out less. And focus your investments on dollar-linked countries. When the dollar bounces back, as it will do in a few years' time - then that will be the time to switch to other currencies.

So where do you invest in the interim? US equities are popular right now, but the upside potential looks limited, and there is always a chance - some believe more than a chance - that the fall of the dollar will precipitate a Wall Street crash as it did in 1987.

No, the best place to stick your money in 2004 is in Gulf stocks and local real estate. Oil is back above $30 a barrel and the good times are still rolling in the Gulf economies which look more and more like boom towns. Stocks are still undervalued in the UAE and Bahrain stock markets and high dividends are attractive alongside the potential for capital gain.

Local real estate pays good yields and rentals are rising for the first time since 1998. This kind of rental market shift generally lasts a few years, so now appears a good time to buy into the market. And despite all the building in Dubai there is actually a shortage of property in many segments of the market.

You can also rely on building material price inflation to drive up real estate prices in the short and medium term. Steel products are up 30-35% in recent months. Jumeirah Beach Resort has already pushed up its apartment prices by 20-25% partly in response.

However, another attractive hedge against the falling dollar is gold, both the physical metal and gold shares. Being heavy stuff investment in gold company shares is a more convenient option.

On the other hand, the euro is also a very liquid place to park your dollars - and collecting the dollar increase entails no more than a switching of accounts. Of course, you have to watch for when the dollar hits the bottom.