Euro Crisis Is Gulf’s Opportunity – OpEd


For the business world, the overriding issue of the moment is the euro crisis.

In the French resort of Cannes, leaders from the G20 group attempted to grapple with it. In stock markets around the world, from Tokyo and Hong Kong to London and New York, fears of contagion from exposure to euro debt shatter confidence and send prices tumbling.

Yet this need not be seen as a problem, certainly not for cash-rich countries such as Saudi Arabia. On the contrary, it presents an opportunity. With the euro falling against other currencies, it means euro stocks are cheaper to buy than they have been in recent months.

European companies, especially in northern Europe, are certainly solid investments. It is not just German companies like Mercedes, BMV and Siemens with their bulging order books. Dutch, Belgian, Austrian, Finnish corporates are profitable, well run and are bound to attract the international investor with cash to spare. Investors are even heading back to Ireland, where the economy has rebounded thanks to a surge in exports and profits for Irish-based multinationals.

Clearly then, for the Gulf investor, particularly the Saudi investor, this is not the time to shun the euro market. On the contrary, it is the time to investigate the opportunities and act. It will be strange indeed if regional institutional investors, particularly sovereign wealth funds (SWFs), do not do so. Arab investors have never been slow to see opportunities where other may see problems. It would be odd indeed it they did not use the current crisis to expand their portfolios by making European acquisitions. The Chinese and the Indians certainly are doing so.

In the case of the SWFs, it is also in their interest to help bring an end to the euro crisis. In the case of Saudi Arabia, the euro zone is collectively its biggest trade partner. It does not help Saudi financial stability long term if its main partner is in difficulties. A struggling Europe could have a serious downward impact on oil prices.

However, while euro shares are presently cheaper to buy, the crisis needs to be put in perspective. The euro may be under pressure, and it is certainly at a six-month low against the US dollar. But it is still at a slightly higher rate against the dollar compared to most of last year.

That is because the euro zone economy is so much bigger than the problems of Greece or even of Italian debt. European products tend to be strong brands with considerable know-how behind them. Many enjoy a mouth-watering slice of international markets. They are well run, and sufficiently well capitalized to see them through the crisis.

But then that is also what makes them all the more attractive to investors with cash.

With European stock markets shaky and share prices moving downward, that (rather than the only relatively recent lower value of the euro) is what will attract the wiser investor looking for a sound return. So while Saudi investors have long been drawn more to the US market, it will not be surprising if now they turn their attention to Europe.

Arab News

Arab News is Saudi Arabia's first English-language newspaper. It was founded in 1975 by Hisham and Mohammed Ali Hafiz. Today, it is one of 29 publications produced by Saudi Research & Publishing Company (SRPC), a subsidiary of Saudi Research & Marketing Group (SRMG).

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