Despite yet another challenging year on the political front, we had a few celebratory moments on a more cheerful business front. Stock markets, particularly in the UAE, Saudi Arabia and Qatar had vigorously shaken off the last residues of the financial crisis. Real estate prices had a free run in a number of markets spearheaded by Dubai. And companies rushed to take advantage of a buoyant ambience to secure cash by issuing bonds or taking a plunge in primary markets. But while it all seems so intoxicating, there are a few facts that should sober us up.
During the past couple of years, many have shied away from ringing the alarming bell regarding another exuberant inflation in asset prices. After all, the world was just recovering from one of the most frightening recessions in modern history, and frankly, anyone blowing the whistle was not welcomed! But these days, there is no shortage in the number of analysts and institutions crying out that another blow to the global economy might be inevitable. The IMF has recently warned that the valuations of all major asset classes are stretched to the limits were they became a reason of concern. These same concerns were echoed previously by the Organization of Economic Cooperation and Development that went further to suggest that a sudden correction in major asset classes was not against the odds. Even banks, which may be not as fond at predicting doom as the rest of the market participants, were more vocal about the current situation though their research departments. Societe General’s Albert Edwards bets on a stock market bubble on the verge of bursting. On the other hand, Deutsche Bank’s strategists believe that it is another asset class that has approached its doomsday: bonds!
Now, thankfully, gone are the days when our part of the world feels insulated from the external economic shocks. There is a lot of soberness in the way decision makers are reacting to the ever changing dynamics of the global economy. And with all the skepticism surrounding oil prices, one can never be too cautious. Soaring spending levels in the past years have put a strain, at least a psychological one, on GCC governments to maintain the exponential increase in public spending without compromising the ever growing size of subsidies. This trend is not sustainable, and any efforts to do so are lost in vein. Baby steps are being taken cautiously in some countries, such as Kuwait and Bahrain, to wean societies from subsidies, but these need to get bigger and bolder sooner rather than later. It is a matter of saving the future after the hard work of the past twenty years or so.
The time has come for the world’s financial leaders to gather again in Washington for this year’s IMF and World Bank meetings. Whether the meetings will be as gloomy as the October weather and latest IMF remarks is still unknown. But Al Arabiya will be there to check the mood of the who’s who in our part of the world. A valuable chance to get perspective into the coming days under what the forecasts suggest might be very grey clouds.
Mohammad El Huseini is the Business News Editor at Al Arabiya News Channel. He has worked in financial and business journalism since 2003, covering the developments of regional markets and economies in what turned out to be one of the most critical decades on the economic front. Mohammad holds an M.A. in Finance and Investments from Queen’s University in Belfast.