Oil money moving to Asia -- Further dollar decline
April 24, 2008
Thanks to record-high oil prices, the countries in the MIddle East have a surplus of dollars to invest. The U.A.E.'s Abu Dhabi Investment Authority is the largest sovereign wealth fund in the world, has $875 billion, while the Kuwait Investment Authority has $213 billion. According to a McKinsey estimate, Middle Eastern countries will have $9 trillion to invest by 2020. (Source: Global Finance, "Corporate Financing News", October 2007)
Over the last five years, Gulf countries have been investing more in their own countries. The Dubai International Finance Center, for example, is a 110-acre site in central Dubai, U.A.E., is home to 550 international companies and seeks to compete with London and New York as a global financial center. The world's tallest tower is now the Burj Dubai, and the Borse Dubai recently partnered with NASDAQ to operate the Dubai International Financial Exchange. (Source: Global Finance, "Let the Good Times Roll", April 2008)
The Middle Eastern countries are now turning their attention to the Far East. On Apr. 8, Saudi-based Al Futtaim, paid $436 million for Singapore-based Robinson stores. Last year, Saudi Telecom invested $3 billion in telecom businesses in Malaysia and Indonesia. Istithmar, the private-equity subsidiary of Dubai World, has created a $1 billion real estate fund focusing on China, India, and Southeast Asia. However, China does not need the money, since it has a $1 trillion sovereign wealth fund of its own. (Source: Business Week, Middle East Money Starts Flowing to Asia, April 16, 2008)
What the oil money moving to Asia means:
Although oil exporting countries increased their holdings in U.S. Treasuries from $110 billion to $146 billion in the last year, this is a small investment compared to what they could invest, and compared to Japan's $586 billion investment or China's $486 billion holding.
However, as Middle Eastern countries' investments in Asia pay off, they won't need the stability of U.S. Treasuries. This would cause further dollar decline resulting in higher inflation. (Source: U.S. Treasury, Major Foreign Holders of U.S. Treasury Securities, February 2008)
Action steps:
Although these countries’s economies have grown tremendously, their stock markets are still too risky to invest in directly. Instead, make sure your portfolio includes good international stock and bond funds.
Becoming well-diversified with international funds, as well as commodity funds, is also a good way to protect yourself from the declining dollar. To find out more, see the WorldMoneyWatch Special Report, The Dollar Collapse.
For more related articles, see Peak Oil Myth
Like this article? Sign up for your free email newsletter.
|
