Hold cash and wait for better opportunities in 2008?
Complex Made Simple

Hold cash and wait for better opportunities in 2008?

Hold cash and wait for better opportunities in 2008?

Investors can be forgiven for looking confused by the forecasts being presented for 2008. There are dark clouds gathering in the global economy and nobody can be certain where the storm will strike next. Thus cash balances are growing as the more cautious investors decide to sit this one out.

    However, for once more opportunistic investors could also learn something from their more cautious friends. The art of making a good investment is to buy cheap, and to have the funds available to buy at that time.

    If, on the contrary, you have loaded yourself up with high risk investments that take a tumble then you will not be able to take advantage of such opportunities – even when they are staring you in the face.

    The Abu Dhabi Investment Authority (ADIA), for example, recently dipped into its huge cash pile and paid $7.5bn for a stake in Citibank whose shares are down 50 per cent courtesy of the credit crunch and sub-prime crisis. In fact ADIA structured the deal first as a loan and then a share purchase to drive an even harder bargain.

    Individual investors are unlikely to be as well placed as the Middle East's number one sovereign wealth fund. But the same principles apply. It just might be worth waiting a while longer to see what happens in 2008.

    The biggest event of the year is surely likely to be a big correction (10-20 per cent) or crash (20-30 per cent) on Wall Street which would trigger a shock wave across the developed and emerging capital markets. It would also most probably hit commodities like oil and gold which have not suffered in the recent credit crunch.

    This could be the point – or shortly afterwards – when the brave investor with cash-in-hand will be richly rewarded. Picking up blue-chip companies when they are temporarily out of favour is the dream of any equity investor; likewise oil and gold assets could be unreasonably sold down with the rest.

    Meanwhile, the cash investor has to decide which currency to hold for even cash is not an entirely passive investment. Unfortunately picking currencies is probably the most difficult area of investment analysis, far harder than picking stocks, bonds or funds.

    A true contrarian might argue that 2008 will be the year of the US dollar and that in a big sell off investors would be forced to embrace the greenback.

    You could also argue that the UK and euro zone will this year feel similar pressures to the US in 2007, and the $500bn emergency liquidity pumped into the banking system last week by the European Central Bank does tend to indicate that something is very a miss in Europe right now.

    However, as this column has suggested before for GCC investors the best options for 2008 are closer to home, and that might well be true for currencies as well. Revaluation is still a strong possibility for several Gulf currencies.

    So add Gulf currencies to local property and stocks for your 2008 portfolio. Never has the mantra 'go local and not global' been more appropriate.

    See also:
    Investment themes for 2008
    Yen-carry trade: Game over?
    Inflation and growth concerns dent US stocks
    AMEinfo Staff

    AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.

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