The Wall Street Journal-20080123-Davos 2008- As West Pleads- Gulf Shrugs- Calls for Energy Help- Additional Investments May Fall on Deaf Ears
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Davos 2008: As West Pleads, Gulf Shrugs; Calls for Energy Help, Additional Investments May Fall on Deaf Ears
DAVOS, Switzerland -- Persian Gulf business leaders and government officials heading to this year's World Economic Forum will be under pressure to show their readiness to ease energy prices and boost foreign investment to help the U.S. and European economies.
But don't hold your breath.
Bargain hunting is one thing, but when it comes to calls for more broad-based investment in Europe and the U.S., or taking action to lower oil prices, the Gulf leaders are likely to prove indifferent.
There is no doubt the Gulf states' sovereign-wealth funds have huge financial firepower. Saudi Arabia, the United Arab Emirates, Qatar and three other Arab monarchies in the oil-rich Persian Gulf are expected to generate current-account surpluses of $200 billion this year as record oil revenue continue to make coffers swell.
Secretary of State Condoleezza Rice and others will argue at Davos that oil near $100 a barrel is part of today's global economic problems -- even though soaring energy prices have funded growth in the Gulf and filled war chests.
President Bush renewed calls for Saudi Arabia to increase its oil output on his recent tour of the region -- a plea that fell on deaf ears.
Bader Al-Sa'ad, head of the Kuwait Investment Authority, and Sheik Hamad bin Jassem Al Thani, head of the Qatar Investment Authority, lead two of the Gulf's largest sovereign funds, and they are likely to get a mixed welcome at the forum. That isn't likely to make them any readier to open their checkbooks.
The Gulf funds are expected to increase their foreign assets by 10% to $2 trillion this year. They have helped shore up the balance sheets of Citigroup Inc., Merrill Lynch & Co. and UBS AG. But with global stocks plunging amid concerns over the faltering U.S. economy, their willingness to buy into a bear market may have its limits. Dubai International Capital, or DIC, and DIFC Investments, two funds controlled by Dubai's ruler, Sheik Mohammed bin Rashid al-Maktoum, have accrued steep paper losses investing recently in financial stocks.
Shares in Deutsche Bank AG have fallen 37% since DIFC Investments became the fifth-largest shareholder by buying a 2.2% stake in the European lender last May. HSBC PLC shares have fallen 24% since DIC bought a stake in the bank.
DIC has incurred further losses since it pumped $1.15 billion into U.S.-based Och-Ziff Capital Management Group LLC. Och-Ziff's shares have fallen almost 24% since DIC invested. A $7.5 billion infusion of cash into Citi by the Abu Dhabi Investment Authority, or ADIA, has done little to reverse the U.S. lender's sagging share price.
Indeed, the Gulf investors may well prefer to invest nearer to home, where growth prospects are better, even if yesterday's three-quarter- point interest-rate cut by the U.S. Federal Reserve will comfort their bets on the U.S. financial sector.
The funds' managers likely have a long-term view and may sniff bargains amid this week's selloff. A full-blown U.S. or global recession is hardly in their interests. Many Gulf leaders will remember the oil slump in 1999, when crude prices fell to around $15 a barrel.
But for the moment, the Gulf's money managers are likely to keep their powder dry regardless of how much Western hand-wringing they see at Davos.
