Sunday, July 06 - 2008

Learning lessons from the Great Arabian stock market bubble

These are sobering times for investors in local Arab stock markets. The boom of last year has been followed by a colossal bust. Late comers to the investment party have been savagely punished, and many large investors also find themselves considerably out of pocket. So where to go next for the Arabian investor?

United Arab Emirates: Monday, May 08 - 2006 at 08:25

related stories
Braver souls immediately think 'straight back into the market'. Picking a market bottom is a nice idea, but it seldom works. Ask those people who bought the Nasdaq hoping that it would bounce back - six years later and this market still remains around 60% down from its all-time high.

Indeed, commentators such as AME Info columnist Dr. Marc Faber's seminal work 'Tomorrow's Gold' has examined investment history and concluded that booms are almost never repeated immediately in an asset class. Instead formerly favored asset classes tend to have a long period of hibernation, and it is almost always best to move to another asset class entirely, and possibly another geographical area.

In the Arabian case we can see that the previous stock market bust of 1998 was followed by five years of sub-par performance until the current boom erupted on the back of higher oil prices. It could be different this time but historical precedent is dead against it.

Nowhere to hide

That leaves investors who have not lost all their fortune in the Great Arabian stock market bubble - sure to join the long list of famous investment cycles - with a dilemma: where to invest with at least some hope of recapturing lost wealth, confidence and prestige?

If we refer again to Dr. Marc Faber - a celebrated contrarian analyst whose track record for predictions in the early 21st century is uncanny - his view is that all major investment classes are overvalued at present, and awaiting a major correction.

For Western investors this is hard to understand. With US equities at a six-year high they have seen nothing but blue sky for a long time. For battle-scared Arabian investors this contrarian view of the future should ring more true. Did they not feel invincible last year, only to find hubris unraveled this year?

Gold overbought?

Yet even staying in cash can seem risky with the US dollar presently in decline. Those sitting on serious cash piles might diversify into the Swiss franc or Singaporean dollar, says Dr. Faber who is even gloomy about the immediate outlook for gold - which he also sees as overvalued and heading for a correction.

Perhaps there are times for investors when it is best to sit on your hands and do nothing. Deposit account interest rates are attractive for the first time in years.

What is quite obvious when you stop to think about it is that interest rates have gone up while asset prices have stayed the same. This can not last for long, asset prices are only high because of previously low interest rates; now that low interest rates have gone, asset prices will fall.

So hold on to your cash, and wait for buying opportunities in the not so distant future!


Peter J. Cooper Peter J. Cooper, Consultant Editor
Monday, May 08 - 2006 at 08:25 UAE local time (GMT+4)

Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of AME Info FZ LLC / Emap Limited.

This Article was updated on Saturday, May 26 - 2007
Disclaimer:
The information comprised in this section is not, nor is it held out to be, a solicitation of any person to take any form of investment decision. The content of the AME Info Web site does not constitute advice or a recommendation by AME Info FZ LLC / Emap Limited and should not be relied upon in making (or refraining from making) any decision relating to investments or any other matter. You should consult your own independent financial adviser and obtain professional advice before exercising any investment decisions or choices based on information featured in this AME Info Web site.

AME Info FZ LLC / Emap Limited can not be held liable or responsible in any way for any opinions, suggestions, recommendations or comments made by any of the contributors to the various columns on the AME Info Web site nor do opinions of contributors necessarily reflect those of AME Info FZ LLC / Emap Limited.

In no event shall AME Info FZ LLC / Emap Limited be liable for any damages whatsoever, including, without limitation, direct, special, indirect, consequential, or incidental damages, or damages for lost profits, loss of revenue, or loss of use, arising out of or related to the AME Info Web site or the information contained in it, whether such damages arise in contract, negligence, tort, under statute, in equity, at law or otherwise.

News Releases

Special Reports

Events Coverage

Daily News Updates

Video

Audio

Financial Markets

Country Focus

News and Comment

Industry Focus

Business Extra

Business Services »

Country Guides »


Register now

AME Info is audited by ABC ELECTRONIC

Audited Unique Users
Mar 2008: 1,185,188


MediaCentre »

Business Directory »

The news you choose

News and Articles »

Current Events »

Sponsored Message