US monetary policy could sink global economy warns expert
Middle East to weather economic fallout – commodity prices to stay buoyant but erratic says investment guru Dr. Marc Faber at 3rd Middle East IPO Summit
According to Hong Kong-based contrarian investment guru, Dr. Marc Faber, the expansionist polices adopted by the US Federal Reserve could bring the global economy to its knees, flying in the face of the decoupling theory.
Dr. Faber addressed delegates at a special Middle East Investment Day, a part of the three-day Middle East IPO Summit, which opened yesterday (Sunday 16 March) at the Intercontinental Hotel, Abu Dhabi. Dr. Faber presented the case for a possible synchronized global economic bust, following the first unprecedented synchronized boom in over 200 years of capitalism.
“It is quite likely that the current synchronized global economic boom and the universal, all-encompassing asset bubble will lead to a colossal bust,” commented Faber.
According to Faber, expansionary US monetary policies, which caused the current credit crisis in the first place, are the wrong medicine to solve the current problems. They can address the symptoms of the excessive credit growth but not the cause. He also added that even though the emerging markets were performing well, investors could still pull out much needed capital. “In essence investors withdraw from these markets to cover losses incurred elsewhere – this merely proliferates the ‘global effect’,” he said.
“It is difficult to see a way out of this looming crisis,” added Deep Marwaha, Senior Conference Manager. “Central bankers have become hostage to inflated asset markets and tightening money supply will be difficult to implement. Tight credit markets would also stifle GDP growth.”
However the GCC countries should fare better than many other emerging markets. The secular uptrend in commodity prices is still intact, although sharp corrections will be experienced as much through market jitters than fundamentals.
“The price of oil is expected to soften as the US heads deeper into recession. However OPEC will not be producing more oil, is likely that quotas will remain static and with strong demand from the emerging markets, especially China, prices will hold firm,” said Faber.
Another positive point would be the size of GCC budget surpluses, estimated at US$ 150 billion and now growing at US$ 1 billion per day. “Colossal amounts out of these reserves are being wisely invested into infrastructure at home and overseas investments could be repatriated dampening the effects of any slowdown in the regional economy,” Marwaha concluded.
Other issues on the agenda include regional investment opportunities, which will be examined by Maha K. Al-Ghunaim, Chairperson and Managing Director of Global Investment House, Kuwait. Private equity leaders will also openly discuss where they see private equity markets heading in the future, and what specific sectors and industries interest them for investment opportunities. They include Ali Erfan, Partner, 3i, UK, and Senior Advisor, Ithmar Capital, UAE; Ziad Makkawi, CEO, Algebra Capital, UAE; Abe Saad, CEO, AB Capital, UAE; and Orhan Osmansoy, CEO, The National Investor, UAE.
Chairing the opening of the two-day IPO conference, which starts today, (Monday 17 March) will be Mamdoh Al Rouhani, Managing Director of Saudi-based MS&L.
